AMN HEALTHCARE SERVICES, INC.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
AMN HEALTHCARE SERVICES, INC.
See accompanying notes to unaudited condensed consolidated financial statements.
AMN HEALTHCARE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
1. BASIS OF PRESENTATION
The condensed consolidated balance sheets and related condensed consolidated statements of comprehensive income and cash flows contained in this Quarterly Report on Form 10-Q (this “Quarterly Report”), which are unaudited, include the accounts of AMN Healthcare Services, Inc. and its wholly-owned subsidiaries (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all entries necessary for a fair presentation of such unaudited condensed consolidated financial statements have been included. These entries consisted of all normal recurring items. The results of operations for the interim period are not necessarily indicative of the results to be expected for any other interim period or for the entire fiscal year or for any future period.
The unaudited condensed consolidated financial statements do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States.States (“U.S. GAAP”). Please refer to the Company’s audited consolidated financial statements and the related notes for the fiscal year ended December 31, 2016,2021, contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2021, filed with the Securities and Exchange Commission on February 17, 2017 (“201624, 2022 (the “2021 Annual Report”).
The preparation of financial statements in conformity with accounting principles generally accepted in the United StatesU.S. GAAP requires management to make a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. On an ongoing basis, the Company evaluates its estimates, including those related to intangible assets purchased in a business combination, asset impairments, accruals for self-insurance, compensation and related benefits, accounts receivable, contingencies and litigation, earn-outcontingent consideration liabilities associated with acquisitions, and income taxes. Actual results could differ from those estimates under different assumptions or conditions.
Recently Adopted Accounting PronouncementsCash, Cash Equivalents and Restricted Cash
In March 2016,The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents include currency on hand, deposits with financial institutions, money market funds, commercial paper and other highly liquid investments. Restricted cash and cash equivalents primarily includes cash, corporate bonds and commercial paper that serve as collateral for the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, “Stock Compensation - ImprovementsCompany’s captive insurance subsidiary claim payments. See Note (6), “Fair Value Measurement” for additional information.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the accompanying condensed consolidated balance sheets and related notes to Employee Share-Based Payment Accounting.” the amounts presented in the accompanying condensed consolidated statements of cash flows.
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Cash and cash equivalents | $ | 155,723 | | | $ | 180,928 | |
Restricted cash and cash equivalents (included in other current assets) | 27,764 | | | 29,262 | |
Restricted cash, cash equivalents and investments | 64,883 | | | 64,482 | |
Total cash, cash equivalents and restricted cash and investments | 248,370 | | | 274,672 | |
Less restricted investments | (26,841) | | | (27,958) | |
Total cash, cash equivalents and restricted cash | $ | 221,529 | | | $ | 246,714 | |
Accounts Receivable
The guidance attemptsCompany records accounts receivable at the invoiced amount. Accounts receivable are non-interest bearing. The Company maintains an allowance for expected credit losses based on the Company’s historical write-off experience, an assessment of its customers’ financial conditions and available information that is relevant to simplifyassessing the accounting for share-based payment transactions in several areas, including the following: income tax consequences, classification of awards as either equity or liabilities, forfeitures, expected term, and statementcollectability of cash flows, classification. The Company adopted this pronouncement prospectively beginning January 1, 2017. Accordingly, the prior period has not been adjustedwhich includes current conditions and the primary effects of the adoption for the current period are as follows:forecasts about future economic conditions.
The Company recorded $56 and $5,381following table provides a reconciliation of tax benefits within income tax expense for the three and nine months ended September 30, 2017, respectively, related to the excess tax benefit on share-based compensation. Prior to adoption, this amount would have been recorded as additional paid-in capital;
The Company continued to estimate the number of awards expected to be forfeited in accordance with its existing accounting policy, which is to estimate forfeitures when recording share-based compensation expense;
The Company excluded the excess tax benefits from the assumed proceeds available to repurchase sharesactivity in the computationallowance for credit losses for accounts receivable:
| | | | | | | | | | | |
| 2022 | | 2021 |
Balance as of January 1, | $ | 6,838 | | | $ | 7,043 | |
| | | |
Provision for expected credit losses | 10,129 | | | 325 | |
Amounts written off charged against the allowance | (1,773) | | | (1,220) | |
| | | |
Balance as of September 30, | $ | 15,194 | | | $ | 6,148 | |
For the nine months ended September 30, 2017, cash flows related to excess tax benefits were classified as an operating activity.
There were no other material impacts to the Company's consolidated financial statements as a result of adopting this updated standard.
2. BUSINESS COMBINATIONSACQUISITIONS
As set forth below, the Company completed threetwo acquisitions during 2016. The Companythe period of January 1, 2021 through September 30, 2022, which were accounted for each acquisition using the acquisition method of accounting. Accordingly, itthe Company recorded the tangible and intangible assets acquired and liabilities assumed at their estimated fair values as of the applicable date of acquisition. Since the applicable date of acquisition, the Company has revised the allocation of the purchase price to the tangible and intangible assets acquired and liabilities assumed based on analysis of information that has been made available through September 30, 2022. The allocations will continue to be updated through the measurement period, if necessary. The goodwill recognized for these acquisitions is attributable to expected growth as the Company leverages its brand and diversifies its services offered to clients, including potential revenue growth and margin expansion. For each acquisition, the Company did not incur any material acquisition-related costs.
Peak Provider SolutionsConnetics Acquisition
On June 3, 2016,May 13, 2022, the Company completed its acquisition of Peak Provider SolutionsConnetics Communications, LLC (“Peak”Connetics”), which provides remote medical codingspecializes in the direct hire recruitment and consulting solutions to hospitalspermanent placement of international nurse and physician medical groups nationwide. The addition of Peak has expandedallied health professionals with healthcare facilities in the Company’s workforce solutions and enables the Company to offer services in coding diagnosis and procedure codes, which is critical to clinical quality reporting and the financial health of healthcare organizations.United States. The initial purchase price of $52,125$78,764 included (1) $51,645$70,764 cash consideration paid upon acquisition, funded through cash-on-hand, net of cash received, and borrowings under the Company’s revolving credit facility,on hand, and (2) a contingent earn-out paymentconsideration (earn-out payment) of up to $3,000$12,500 with an estimated fair value of $480 as of the acquisition date. The contingent earn-out payment was based on the operating results of Peak for the year ending December 31, 2016, which resulted in no earn-out payment. As the acquisition was not considered significant, pro forma information has not been provided. The results of Peak have been included in the Company’s other workforce solutions segment since the date of acquisition. During the third quarter of 2016, an additional $275 of cash consideration was paid to the selling shareholders for the final working capital settlement.
The allocation of the $52,400 purchase price, which included the additional cash consideration paid for the final working capital settlement, consisted of (1) $5,658 of fair value of tangible assets acquired, (2) $9,346 of liabilities assumed, (3) $19,220 of identified intangible assets, and (4) $36,868 of goodwill, none of which is deductible for tax purposes. The fair value of intangible assets primarily includes $7,600 of trademarks and $11,500 of customer relationships with a weighted average useful life of approximately thirteen years.
HealthSource Global Staffing Acquisition
On January 11, 2016, the Company completed its acquisition of HealthSource Global Staffing (“HSG”), which provides labor disruption and rapid response staffing. The acquisition helps the Company expand its service lines and provide clients with rapid response staffing services. The initial purchase price of $8,511 included (1) $2,799 cash consideration paid upon acquisition, funded through cash-on-hand, net of cash received, and settlement of the pre-existing relationship between AMN and HSG, (2) $2,122 cash holdback for potential indemnification claims, and (3) a tiered contingent earn-out payment of up to $4,000 with an estimated fair value of $3,590$8,000 as of the acquisition date. The contingent earn-out payment is comprised of (A) up to $2,000 based on the operating results of HSGConnetics for the yeartwelve months ending DecemberMay 31, 2016, of which, $1,930 was paid in March 2017, and (B) up to $2,000 based on the operating results of HSG for the year ending December 31, 2017. As the acquisition was not considered significant, pro forma information has not been provided.2023. The results of HSGConnetics have been included in the Company’s nurse and allied solutions segment since the date of acquisition. During the third quarter of 2016, the final working capital settlement resulted in $292 due from the selling shareholders to the Company, which was settled through a reduction to a cash holdback.
The preliminary allocation of the $8,219 purchase price, which was reduced by the final working capital settlement,$78,764 consisted of (1) $1,025$3,694 of fair value of tangible assets acquired, which included $963 cash received, (2) $3,698$8,431 of liabilities assumed, (3) $3,944$40,200 of identified intangible assets, and (4) $6,948$43,301 of goodwill, none of which $35,317 is deductible for tax purposes. The intangible assets include the fair value of trademarks, customer relationships, staffing databases, and covenants not to compete withacquired have a weighted average useful life of approximately eightthirteen years. The following table summarizes the fair value and useful life of each intangible asset acquired as of the acquisition date:
B.E. Smith | | | | | | | | | | | | | | | | | |
| | | Fair Value | | Useful Life |
| | | | | (in years) |
Identifiable intangible assets | | | | |
| Customer relationships | | $ | 32,800 | | | 15 |
| Staffing database | | 4,200 | | | 5 |
| Tradenames and trademarks | | 3,200 | | | 5 |
| | | $ | 40,200 | | | |
Synzi and SnapMD Acquisition
On January 4, 2016,April 7, 2021, the Company completed its acquisition of B.E. SmithSynzi Holdings, Inc. (“BES”Synzi”), and its wholly-owned subsidiary, SnapMD, LLC (“SnapMD”). Synzi is a virtual care communication platform that enables organizations to conduct virtual visits and use secure messaging, text, and email for clinician-to-patient and clinician-to-clinician communications. SnapMD is a full-service virtual care management company, specializing in providing software to enable healthcare interim leadership placement and executive search firm, for $162,232 in cash, netproviders to better engage with their patients. The initial purchase price of $42,240 consisted entirely of cash received, and settlement of the pre-existing relationship between AMN and BES. BES places interim leaders and executives across all healthcare settings, including acute care hospitals, academic medical and children’s hospitals, physician practices, and post-acute care providers.consideration paid upon acquisition. The acquisition provideswas funded primarily through borrowings under the CompanyCompany’s $400,000 senior secured revolving credit facility (the “Senior Credit Facility”). See additional access to healthcare executives and enhances its integrated services to hospitals, health systems, and other healthcare facilities acrossinformation regarding the nation. To help finance the acquisition, the Company entered into the First Amendment to theSenior Credit Agreement (the “First Amendment”), which provided $125,000 of additional available borrowings to the Company. The First Amendment was more fully describedFacility in “Item 8. FinancialPart II, Item 8, “Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (8), Notes Payable and Credit Agreement” of our 2016the 2021 Annual Report. The results of BESSynzi and SnapMD have been included in the Company’s othertechnology and workforce solutions segment since the date of acquisition. During the second quarter of 2016, $5242021, $92 was returned to the Company forin respect of the final working capital settlement.
The allocation of the $161,708$42,148 purchase price, which was reduced by the final working capital settlement and was finalized during the second quarter of 2022, consisted of (1) $11,953$2,757 of fair value of tangible assets acquired, which included $884 cash received, (2) $7,272$275 of liabilities assumed, (3) $65,900$12,440 of identified intangible assets, and (4) $91,127$27,226 of goodwill, most of which $6,044 is deductible for tax purposes. The fair value of intangible assets acquired haveprimarily includes $10,890 of developed technology and $1,220 of trademarks with a weighted average useful life of approximately fifteenseven years. The following table summarizes the fair value and useful life of each intangible asset acquired:
|
| | | | | | | |
| | | Fair Value | | Useful Life |
| | | | | (in years) |
Identifiable intangible assets | | | |
| Tradenames and Trademarks | | $ | 26,300 |
| | 20 |
| Customer Relationships | | 25,700 |
| | 12 |
| Staffing Database | | 13,000 |
| | 10 |
| Non-Compete Agreements | | 900 |
| | 5 |
| | | $ | 65,900 |
| | |
3. REVENUE RECOGNITION
Revenue primarily consists of fees earned from the temporary staffing and permanent placement of healthcare professionals, executives, and executives as well asleaders (clinical and operational). The Company also generates revenue from the Company’s SaaS-based technology,technology-enabled services, including itslanguage interpretation and vendor management systems, and talent planning and acquisition services, including recruitment process outsourcing. The Company recognizes revenue when control of its scheduling software.services is transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those services. Revenue from temporary staffing services is recognized as the services are rendered by theclinical and non-clinical healthcare professional or executive.professionals. Under the Company’s managed services program (“MSP”) arrangements, the Company manages all or a part of a customer’s supplemental workforce needs utilizing its own poolnetwork of healthcare professionals along with those of third-party subcontractors. Revenue and the related direct costs under MSP arrangements are recorded in accordance with the accounting guidance on reporting revenue gross as a principal versus net as an agent. When the Company uses subcontractors and acts as an agent, revenue is recorded net of the related subcontractor’s expense. Payables to subcontractors of $38,167 and $51,973 were included in accounts payable and accrued expenses in the unaudited condensed consolidated balance sheet as of September 30, 2017 and the consolidated balance sheet as of December 31, 2016, respectively. Revenue from recruitment and permanent placement and recruitment process outsourcing services is recognized as the services are provided and upon successful placements. Therendered. Depending on the arrangement, the Company’s SaaS-basedtechnology-enabled service revenue is recognized either as the services are rendered or ratably over the applicable arrangement’s service period. Fees
The Company’s customers are primarily billed as services are rendered. Any fees billed in advance of being earned are recorded as deferred revenue. While payment terms vary by the type of customer and the services rendered, the term between invoicing and when payment is due is not significant.
The Company has elected to apply the following practical expedients and optional exemptions related to contract costs and revenue recognition:
•Recognize incremental costs of obtaining a contract with amortization periods of one year or less as expense when incurred. These costs are recorded within selling, general and administrative expenses. •Recognize revenue in the amount of consideration that the Company has a right to invoice the customer if that amount corresponds directly with the value to the customer of the Company’s services completed to date.
•Exemptions from disclosing the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts for which revenue is recognized in the amount of consideration that the Company has a right to invoice for services performed and (iii) contracts for which variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation.
See Note (5), “Segment Information,” for additional information regarding the Company’s revenue disaggregated by service type.
4. NET INCOME PER COMMON SHARE
Basic net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the reporting period. The following table sets forth the computation of basic and diluted net income per common share for the three months and nine months ended September 30, 2017 and 2016, respectively:share:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 | | 2022 | | 2021 | | 2022 | | 2021 |
Net income | $ | 28,128 |
| | $ | 27,296 |
| | $ | 91,391 |
| | $ | 79,487 |
| Net income | $ | 92,445 | | | $ | 74,023 | | | $ | 362,253 | | | $ | 211,171 | |
| | | | | | | | | | | | | | | |
Net income per common share - basic | $ | 0.59 |
| | $ | 0.57 |
| | $ | 1.91 |
| | $ | 1.66 |
| Net income per common share - basic | $ | 2.11 | | | $ | 1.55 | | | $ | 8.04 | | | $ | 4.43 | |
Net income per common share - diluted | $ | 0.57 |
| | $ | 0.55 |
| | $ | 1.85 |
| | $ | 1.61 |
| Net income per common share - diluted | $ | 2.10 | | | $ | 1.54 | | | $ | 7.99 | | | $ | 4.40 | |
| | | | | | | | | | | | | | | |
Weighted average common shares outstanding - basic | 47,912 |
| | 48,049 |
| | 47,870 |
| | 47,993 |
| Weighted average common shares outstanding - basic | 43,785 | | | 47,737 | | | 45,056 | | | 47,666 | |
Plus dilutive effect of potential common shares | 1,533 |
| | 1,361 |
| | 1,610 |
| | 1,294 |
| Plus dilutive effect of potential common shares | 254 | | | 343 | | | 276 | | | 356 | |
Weighted average common shares outstanding - diluted | 49,445 |
| | 49,410 |
| | 49,480 |
| | 49,287 |
| Weighted average common shares outstanding - diluted | 44,039 | | | 48,080 | | | 45,332 | | | 48,022 | |
Share-based awards to purchase 1014 and 1415 shares of common stock were not included in the above calculation of diluted net income per common share for the three and nine months ended September 30, 2017,2022, respectively, because the effect of these instruments was anti-dilutive. Share-based awards to purchase 1121 and 1826 shares of common stock were not included in the above calculation of diluted net income per common share for the three and nine months ended September 30, 20162021, respectively, because the effect of these instruments was anti-dilutive.
5. SEGMENT INFORMATION
The Company’s operating segments are identified in the same manner as they are reported internally and used by the Company’s chief operating decision maker for the purpose of evaluating performance and allocating resources. The Company has three reportable segments: (1) nurse and allied solutions, (2) physician and leadership solutions, and (3) technology and workforce solutions. The nurse and allied solutions segment includes the Company’s travel nurse staffing (including international nurse staffing and rapid response nurse staffing), labor disruption staffing, local staffing, international nurse and allied permanent placement, allied staffing and revenue cycle solutions businesses. The physician and leadership solutions segment includes the Company’s locum tenens staffing, healthcare interim leadership staffing, executive search, and physician permanent placement businesses. The technology and workforce solutions segment includes the Company’s language services, vendor management systems, workforce optimization, virtual care, credentialing solutions, and other workforce solutions.outsourced solutions businesses.
The Company’s chief operating decision maker relies on internal management reporting processes that provide revenue and operating income by reportable segment for making financial decisions and allocating resources. Segment operating income represents income before income taxes plus depreciation, amortization of intangible assets, share-based compensation, interest expense, net, and other, and unallocated corporate overhead. The Company’s management does not evaluate, manage or measure performance of segments using asset information; accordingly, asset information by segment is not prepared or disclosed.
The following table provides a reconciliation of revenue and operating income by reportable segment to consolidated results and was derived from each segment’s internal financial information as used for corporate management purposes:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Revenue | | | | | | | |
Nurse and allied solutions | $ | 828,317 | | | $ | 627,049 | | | $ | 3,157,834 | | | $ | 1,908,195 | |
Physician and leadership solutions | 175,152 | | | 150,663 | | | 530,355 | | | 430,523 | |
Technology and workforce solutions | 135,117 | | | 100,088 | | | 429,542 | | | 282,472 | |
| $ | 1,138,586 | | | $ | 877,800 | | | $ | 4,117,731 | | | $ | 2,621,190 | |
Segment operating income | | | | | | | |
Nurse and allied solutions | $ | 115,182 | | | $ | 92,564 | | | $ | 471,141 | | | $ | 283,768 | |
Physician and leadership solutions | 23,904 | | | 19,301 | | | 64,280 | | | 62,366 | |
Technology and workforce solutions | 71,145 | | | 47,210 | | | 232,526 | | | 131,952 | |
| 210,231 | | | 159,075 | | | 767,947 | | | 478,086 | |
Unallocated corporate overhead | 34,635 | | | 23,867 | | | 116,356 | | | 74,915 | |
Depreciation and amortization | 33,239 | | | 26,104 | | | 96,169 | | | 74,098 | |
Depreciation (included in cost of revenue) | 1,091 | | | 686 | | | 2,918 | | | 1,773 | |
Share-based compensation | 4,898 | | | 2,589 | | | 24,670 | | | 17,895 | |
Interest expense, net, and other | 8,961 | | | 5,223 | | | 28,630 | | | 24,278 | |
Income before income taxes | $ | 127,407 | | | $ | 100,606 | | | $ | 499,204 | | | $ | 285,127 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Revenue | | | | | | | |
Nurse and allied solutions | $ | 302,933 |
| | $ | 286,810 |
| | $ | 917,183 |
| | $ | 877,197 |
|
Locum tenens solutions | 111,415 |
| | 108,553 |
| | 322,473 |
| | 320,420 |
|
Other workforce solutions | 80,058 |
| | 77,273 |
| | 239,722 |
| | 216,750 |
|
| $ | 494,406 |
| | $ | 472,636 |
| | $ | 1,479,378 |
| | $ | 1,414,367 |
|
Segment operating income | | | | | | | |
Nurse and allied solutions | $ | 40,807 |
| | $ | 37,396 |
| | $ | 134,638 |
| | $ | 118,517 |
|
Locum tenens solutions | 14,438 |
| | 14,026 |
| | 39,028 |
| | 43,634 |
|
Other workforce solutions | 19,890 |
| | 20,867 |
| | 61,788 |
| | 56,311 |
|
| 75,135 |
| | 72,289 |
| | 235,454 |
| | 218,462 |
|
Unallocated corporate overhead | 13,698 |
| | 15,113 |
| | 44,732 |
| | 45,908 |
|
Depreciation and amortization | 8,132 |
| | 7,789 |
| | 23,759 |
| | 21,888 |
|
Share-based compensation | 2,477 |
| | 2,704 |
| | 7,720 |
| | 8,795 |
|
Interest expense, net, and other | 4,837 |
| | 3,016 |
| | 14,895 |
| | 9,065 |
|
Income before income taxes | $ | 45,991 |
| | $ | 43,667 |
| | $ | 144,348 |
| | $ | 132,806 |
|
The following tables present the Company’s revenue disaggregated by service type. Prior period amounts have been reclassified to conform with current period presentation. These reclassifications have no impact on total revenue by reportable segment. | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2022 |
| Nurse and Allied Solutions | | Physician and Leadership Solutions | | Technology and Workforce Solutions | | Total |
Travel nurse staffing | $ | 583,463 | | | $ | — | | | $ | — | | | $ | 583,463 | |
Labor disruption services | 19,479 | | | — | | | — | | | 19,479 | |
Local staffing | 31,814 | | | — | | | — | | | 31,814 | |
Allied staffing | 190,044 | | | — | | | — | | | 190,044 | |
Locum tenens staffing | — | | | 106,055 | | | — | | | 106,055 | |
Interim leadership staffing | — | | | 47,559 | | | — | | | 47,559 | |
Temporary staffing | 824,800 | | | 153,614 | | | — | | | 978,414 | |
Permanent placement | 3,517 | | | 21,538 | | | — | | | 25,055 | |
Language services | — | | | — | | | 55,502 | | | 55,502 | |
Vendor management systems | — | | | — | | | 60,304 | | | 60,304 | |
Other technologies | — | | | — | | | 7,290 | | | 7,290 | |
Technology-enabled services | — | | | — | | | 123,096 | | | 123,096 | |
Talent planning and acquisition | — | | | — | | | 12,021 | | | 12,021 | |
Total revenue | $ | 828,317 | | | $ | 175,152 | | | $ | 135,117 | | | $ | 1,138,586 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2021 |
| Nurse and Allied Solutions | | Physician and Leadership Solutions | | Technology and Workforce Solutions | | Total |
Travel nurse staffing | $ | 444,803 | | | $ | — | | | $ | — | | | $ | 444,803 | |
Labor disruption services | 22,573 | | | — | | | — | | | 22,573 | |
Local staffing | 23,272 | | | — | | | — | | | 23,272 | |
Allied staffing | 136,401 | | | — | | | — | | | 136,401 | |
Locum tenens staffing | — | | | 88,994 | | | — | | | 88,994 | |
Interim leadership staffing | — | | | 43,814 | | | — | | | 43,814 | |
Temporary staffing | 627,049 | | | 132,808 | | | — | | | 759,857 | |
Permanent placement | — | | | 17,855 | | | — | | | 17,855 | |
Language services | — | | | — | | | 47,135 | | | 47,135 | |
Vendor management systems | — | | | — | | | 33,467 | | | 33,467 | |
Other technologies | — | | | — | | | 7,819 | | | 7,819 | |
Technology-enabled services | — | | | — | | | 88,421 | | | 88,421 | |
Talent planning and acquisition | — | | | — | | | 11,667 | | | 11,667 | |
Total revenue | $ | 627,049 | | | $ | 150,663 | | | $ | 100,088 | | | $ | 877,800 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2022 |
| Nurse and Allied Solutions | | Physician and Leadership Solutions | | Technology and Workforce Solutions | | Total |
Travel nurse staffing | $ | 2,329,240 | | | $ | — | | | $ | — | | | $ | 2,329,240 | |
Labor disruption services | 102,549 | | | — | | | — | | | 102,549 | |
Local staffing | 109,265 | | | — | | | — | | | 109,265 | |
Allied staffing | 611,226 | | | — | | | — | | | 611,226 | |
Locum tenens staffing | — | | | 324,663 | | | — | | | 324,663 | |
Interim leadership staffing | — | | | 139,519 | | | — | | | 139,519 | |
Temporary staffing | 3,152,280 | | | 464,182 | | | — | | | 3,616,462 | |
Permanent placement | 5,554 | | | 66,173 | | | — | | | 71,727 | |
Language services | — | | | — | | | 158,031 | | | 158,031 | |
Vendor management systems | — | | | — | | | 210,470 | | | 210,470 | |
Other technologies | — | | | — | | | 21,787 | | | 21,787 | |
Technology-enabled services | — | | | — | | | 390,288 | | | 390,288 | |
Talent planning and acquisition | — | | | — | | | 39,254 | | | 39,254 | |
Total revenue | $ | 3,157,834 | | | $ | 530,355 | | | $ | 429,542 | | | $ | 4,117,731 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2021 |
| Nurse and Allied Solutions | | Physician and Leadership Solutions | | Technology and Workforce Solutions | | Total |
Travel nurse staffing | $ | 1,400,629 | | | $ | — | | | $ | — | | | $ | 1,400,629 | |
Labor disruption services | 25,126 | | | — | | | — | | | 25,126 | |
Local staffing | 80,932 | | | — | | | — | | | 80,932 | |
Allied staffing | 401,508 | | | — | | | — | | | 401,508 | |
Locum tenens staffing | — | | | 253,190 | | | — | | | 253,190 | |
Interim leadership staffing | — | | | 126,584 | | | — | | | 126,584 | |
Temporary staffing | 1,908,195 | | | 379,774 | | | — | | | 2,287,969 | |
Permanent placement | — | | | 50,749 | | | — | | | 50,749 | |
Language services | — | | | — | | | 133,706 | | | 133,706 | |
Vendor management systems | — | | | — | | | 96,086 | | | 96,086 | |
Other technologies | — | | | — | | | 21,791 | | | 21,791 | |
Technology-enabled services | — | | | — | | | 251,583 | | | 251,583 | |
Talent planning and acquisition | — | | | — | | | 30,889 | | | 30,889 | |
Total revenue | $ | 1,908,195 | | | $ | 430,523 | | | $ | 282,472 | | | $ | 2,621,190 | |
The following table summarizes the activity related to the carrying value of goodwill by reportable segment:
| | | | | | | | | | | | | | | | | | | | | | | |
| Nurse and Allied Solutions | | Physician and Leadership Solutions | | Technology and Workforce Solutions | | Total |
Balance, January 1, 2022 | $ | 339,015 | | | $ | 152,800 | | | $ | 400,526 | | | $ | 892,341 | |
| | | | | | | |
| | | | | | | |
Goodwill adjustment for Synzi and SnapMD acquisition | — | | | — | | | 33 | | | 33 | |
Goodwill from Connetics acquisition | 43,301 | | | — | | | — | | | 43,301 | |
Balance, September 30, 2022 | $ | 382,316 | | | $ | 152,800 | | | $ | 400,559 | | | $ | 935,675 | |
Accumulated impairment loss as of December 31, 2021 and September 30, 2022 | $ | 154,444 | | | $ | 60,495 | | | $ | — | | | $ | 214,939 | |
|
| | | | | | | | | | | | | | | |
| Nurse and Allied Solutions | | Locum Tenens Solutions | | Other Workforce Solutions | | Total |
Balance, January 1, 2017 | $ | 104,306 |
| | $ | 19,743 |
| | $ | 217,705 |
| | $ | 341,754 |
|
Goodwill adjustment for HSG acquisition | (1,199 | ) | | — |
| | — |
| | (1,199 | ) |
Goodwill adjustment for Peak acquisition | — |
| | — |
| | 41 |
| | 41 |
|
Balance, September 30, 2017 | $ | 103,107 |
| | $ | 19,743 |
| | $ | 217,746 |
| | $ | 340,596 |
|
Accumulated impairment loss as of December 31, 2016 and September 30, 2017 | $ | 154,444 |
| | $ | 53,940 |
| | $ | 6,555 |
| | $ | 214,939 |
|
6. FAIR VALUE MEASUREMENT
The Company’s valuation techniques and inputs used to measure fair value and the definition of the three levels (Level 1, Level 2, and Level 3) of the fair value hierarchy are disclosed in Part II, Item 8, “Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 4—(3), Fair Value Measurement” of the 20162021 Annual Report. The Company has not changed the valuation techniques or inputs it uses for its fair value measurement during the nine months ended September 30, 2017.2022.
Assets and Liabilities Measured on a Recurring Basis
The Company’s restrictedCompany invests a portion of its cash and cash equivalents that serve as collateral for the Company’s outstanding letters of credit
typically consist ofin non-federally insured money market funds that are measured at fair value based on quoted prices, which are Level 1 inputs.
The Company has a deferred compensation plan for certain executives and employees, which is composed of deferred compensation and all related income and losses attributable thereto. The Company’s obligation under its deferred compensation plan is measured at fair value based on quoted market prices of the participants’ elected investments, which are Level 1 inputs.
The Company’s restricted cash equivalents and investments that serve as collateral for the Company’s captive insurance company primarily consist ofinclude commercial paper that is measured at observable market prices for identical securities that are traded in less active markets, which are Level 2 inputs. The Company’s cash equivalents also include commercial paper classified as Level 2 in the fair value hierarchy. Of the $28,538$29,296 commercial paper issued and outstanding as of September 30, 2017, $5,0762022, none had original maturities greater than three months whichand were considered available-for-sale securities. As of December 31, 2016,2021, the Company had $25,610$80,596 commercial paper issued and outstanding, of which $11,152none had original maturities greater than three months and were considered available-for-sale securities.
The Company’s restricted cash equivalents and investments that serve as collateral for the Company’s captive insurance company also include corporate bonds that are measured using readily available pricing sources that utilize observable market data, including the current interest rate swap wasfor comparable instruments, which are Level 2 inputs. As of September 30, 2022, the Company had $26,841 corporate bonds issued and outstanding, all of which had original maturities greater than three months and were considered available-for-sale securities. As of December 31, 2021, the Company had $29,159 corporate bonds issued and outstanding, of which $27,958 had original maturities greater than three months and were considered available-for-sale securities.
The Company’s contingent consideration liabilities associated with acquisitions are measured at fair value using a discounted cash flow analysis that includes the contractual terms, including the period to maturity, and Level 2 observable market-based inputs, including interest rate curves. The fair value of the swap was determined by netting the discounted future fixed cash receipts payments and the discounted expected variable cash receipts. The variable cash receipts were based on an expectation of future interest rates (forward curves) derived from observable market interest rate yield curves. The valuation also considered credit risk adjustments that were necessary to reflect the probability of default by the counterparty or the Company, which were considered Level 3 inputs. On May 3, 2017, the Company terminated the remaining interest rate swap.
The Company’s contingent consideration liabilities are measured at fair value using probability-weighted discounted cash flow analysis or a simulation-based methodology for the acquired companies, which are Level 3 inputs. The Company recognizes changes to the fair value of its contingent consideration liabilities in selling, general and administrative expenses in the condensed consolidated statements of comprehensive income.
The following tables present information about the above-referenced assets and liabilities and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements as of September 30, 2022 | | Fair Value Measurements as of December 31, 2021 |
Assets (Liabilities) | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Money market funds | $ | 125,859 | | | $ | — | | | $ | — | | | $ | 125,859 | | | $ | 91,454 | | | $ | — | | | $ | — | | | $ | 91,454 | |
Deferred compensation | (116,922) | | | — | | | — | | | (116,922) | | | (119,617) | | | — | | | — | | | (119,617) | |
Corporate bonds | — | | | 26,841 | | | — | | | 26,841 | | | — | | | 29,159 | | | — | | | 29,159 | |
Commercial paper | — | | | 29,296 | | | — | | | 29,296 | | | — | | | 80,596 | | | — | | | 80,596 | |
Acquisition contingent consideration liabilities | — | | | — | | | (6,810) | | | (6,810) | | | — | | | — | | | — | | | — | |
|
| | | | | | | | | | | | | | | |
| Fair Value Measurements as of September 30, 2017 |
| Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Money market funds | $ | 4,026 |
| | $ | 4,026 |
| | $ | — |
| | $ | — |
|
Commercial paper | 28,538 |
| | — |
| | 28,538 |
| | — |
|
Acquisition contingent consideration earn-out liabilities | (1,952 | ) | | — |
| | — |
| | (1,952 | ) |
|
| | | | | | | | | | | | | | | |
| Fair Value Measurements as of December 31, 2016 |
| Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Money market funds | $ | 4,627 |
| | $ | 4,627 |
| | $ | — |
| | $ | — |
|
Commercial paper | 25,610 |
| | — |
| | 25,610 |
| | — |
|
Interest rate swap asset | 24 |
| | — |
| | 24 |
| | — |
|
Acquisition contingent consideration earn-out liabilities | (6,816 | ) | | — |
| | — |
| | (6,816 | ) |
Level 3 Information
The following table setstables set forth a reconciliation of changes in the fair value of contingent consideration liabilities classified as Level 3 in the fair value hierarchy: |
| | | | | | | |
| Three Months Ended September 30, |
| 2017 | | 2016 |
Balance as of July 1, | $ | (1,932 | ) |
| $ | (7,054 | ) |
Change in fair value of contingent consideration earn-out liability from Peak acquisition | — |
| | 480 |
|
Change in fair value of contingent consideration earn-out liability from TFS acquisition | — |
| | (94 | ) |
Change in fair value of contingent consideration earn-out liability from HSG acquisition | (20 | ) | | (84 | ) |
Balance as of September 30, | $ | (1,952 | ) | | $ | (6,752 | ) |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Balance as of January 1, | $ | (6,816 | ) | | $ | (3,770 | ) |
Settlement of TFS earn-out for year ended December 31, 2015 | — |
| | 1,000 |
|
Contingent consideration earn-out liability from HSG acquisition on January 11, 2016 | — |
| | (3,590 | ) |
Contingent consideration earn-out liability from Peak acquisition on June 3, 2016 | — |
| | (480 | ) |
Change in fair value of contingent consideration earn-out liability from Avantas acquisition | — |
| | 660 |
|
Change in fair value of contingent consideration earn-out liability from TFS acquisition | — |
| | (859 | ) |
Change in fair value of contingent consideration earn-out liability from HSG acquisition | (66 | ) | | (193 | ) |
Change in fair value of contingent consideration earn-out liability from Peak acquisition | — |
| | 480 |
|
Settlement of TFS earn-out for year ended December 31, 2016 | 3,000 |
| | — |
|
Settlement of HSG earn-out for year ended December 31, 2016 | 1,930 |
| | — |
|
Balance as of September 30, | $ | (1,952 | ) | | $ | (6,752 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Beginning balance | $ | (8,580) | | | $ | — | | | $ | — | | | $ | (8,000) | |
Settlement of b4health contingent consideration liability for year ended December 31, 2020 | — | | | — | | | — | | | 8,000 | |
Contingent consideration liability from Connetics acquisition on May 13, 2022 | — | | | — | | | (8,000) | | | — | |
Change in fair value of contingent consideration liability from Connetics acquisition | 1,770 | | | — | | | 1,190 | | | — | |
Ending balance | $ | (6,810) | | | $ | — | | | $ | (6,810) | | | $ | — | |
Assets Measured on a Non-Recurring Basis
The Company applies fair value techniques on a non-recurring basis associated with valuing potential impairment losses related to its goodwill, indefinite-lived intangible assets, long-lived assets, and equity investments.
The Company evaluates goodwill and indefinite-lived intangible assets annually for impairment and whenever events or changes in circumstances occur indicatingindicate that goodwill might be impaired.it is more likely than not that an impairment exists. The Company determines the fair value of its reporting units based on a combination of inputs, including the market capitalization of the Company, as well as Level 3 inputs such as discounted cash flows, which are not observable from the market, directly or indirectly. The Company determines the fair value of its indefinite-lived intangible assets using the income approach (relief-from-royalty method) based on Level 3 inputs.
The Company’s equity investment represents an investment in a non-controlled corporation without a readily determinable market value. The Company has elected to measure the investment at cost minus impairment, if any, plus or minus changes resulting from observable price changes. The fair value is determined by using quoted prices for identical or similar investments of the same issuer, which are Level 2 inputs, and other information available to the Company such as the rights and obligations of the securities. The Company recognizes changes to the fair value of its equity investment in interest expense, net, and other in the condensed consolidated statements of comprehensive income. The balance of the equity investment was $22,633 as of both September 30, 2022 and December 31, 2021.
There were no triggering events identified, and no indication of impairment of the Company’s goodwill, indefinite-lived intangible assets, long-lived assets, or equity investments, and no impairment charges recorded during the nine months ended September 30, 20172022 and 2016.
2021.
Fair Value of Financial Instruments
The carrying amountCompany is required to disclose the fair value of financial instruments for which it is practicable to estimate the value, even though these instruments are not recognized at fair value in the consolidated balance sheets. The fair value of the Company’s 4.625% senior notes approximate their fair values. Thedue 2027 (the “2027 Notes”) and 4.000% senior notes were issueddue 2029 (the “2029 Notes”) was estimated using quoted market prices in October 2016active markets for identical liabilities, which are Level 1 inputs. The carrying amounts and have a fixed rateestimated fair value of 5.125%. There have been no changesthe 2027 Notes and the 2029 Notes are presented in available rates for similar debt since the date of issuance.following table. See additional information regarding the 2027 Notes and the 2029 Notes in “Item 8. FinancialPart II, Item 8, “Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (8), Notes Payable and Credit Agreement” of our 2016the 2021 Annual Report.
| | | | | | | | | | | | | | | | | |
| As of September 30, 2022 | | As of December 31, 2021 |
| Carrying Amount | Estimated Fair Value | | Carrying Amount | Estimated Fair Value |
2027 Notes | $ | 500,000 | | $ | 447,500 | | | $ | 500,000 | | $ | 517,500 | |
2029 Notes | 350,000 | | 294,000 | | | 350,000 | | 353,500 | |
The fair value of the Company’s long-term self-insurance accruals cannot be estimated as the Company cannot reasonably determine the timing of future payments.
7. INCOME TAXES
The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. With few exceptions, as of September 30, 2017,2022, the Company is no longer subject to state, local or foreign examinations by tax authorities for tax years before 2006,2011, and the Company is no longer subject to U.S. federal income or payroll tax examinations for tax years before 2011. The Company’s tax years 2007, 2008, 2009 and 2010 had been under audit by the Internal Revenue Service (“IRS”) for several years and in 2014, the IRS issued the Company its Revenue Agent Report (“RAR”) and an Employment Tax Examination Report (“ETER”). The RAR proposed adjustments to the Company’s taxable income for 2007-2010 and net operating loss carryforwards for 2005 and 2006, resulting from the proposed disallowance of certain per diems paid to the Company’s healthcare professionals, and the ETER proposed assessments for additional payroll tax liabilities and penalties for tax years 2009 and 2010 related to the Company’s treatment of certain non-taxable per diem allowances and travel benefits. The positions in the RAR and ETER were mutually exclusive, and contained multiple tax positions, some of which were contrary to each other. The Company filed a Protest Letter for both the RAR and ETER positions in 2014 and the Company received a final determination from the IRS in July 2015 on both the RAR adjustments and ETER assessments, effectively settling these audits with the IRS for $7,200 (including interest) during the third quarter of 2015. As a result of the settlement, the Company recorded federal income tax benefits of approximately $12,200 during the quarter ended September 30, 2015, state income tax benefits (net of federal tax impact) of $568 for the year ended December 31, 2016, and expects to record state income tax benefits (net of federal tax impact) of approximately $1,200 by fiscal year 2019, when the various state statutes are projected to lapse.2018.
The IRS conducted and completed a separate audit of the Company’s 2011 and 2012 tax years that focused on income and employment tax issues similar to those raised in the 2007 through 2010 examination. The IRS completed its audit during the quarter ended March 31, 2015, and issued its RAR and ETER to the Company with proposed adjustments to the Company’s taxable income for 2011 and 2012 and net operating loss carryforwards from 2010 and assessments for additional payroll tax liabilities and penalties for 2011 and 2012 related to the Company’s treatment of certain non-taxable per diem allowances and travel benefits. The positions in the RAR and ETER for the 2011 and 2012 years are mutually exclusive and contain multiple tax positions, some of which are contrary to each other. The Company filed a Protest Letter for both the RAR and ETER in April 2015 and the matter is currently at IRS Appeals. The Company has been meeting and working with the IRS Appeals office and anticipates a resolution within the next twelve months. The IRS began an audit of the Company’s 2013 tax year during the quarter ended June 30, 2015. The Company believes its reserveliability for unrecognized tax benefits and contingent tax issues is adequate with respect to all open years. Notwithstanding the foregoing, the Company could adjust its provision for income taxes and contingent tax liability based on future developments.
CARES Act
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted and signed into law in response to the COVID-19 pandemic. Among other things, the CARES Act contains significant business tax provisions, including a deferral of payment of employer payroll taxes and an employer retention credit for employer payroll taxes. The Company deferred payment of the employer’s share of payroll taxes of $48,452. Approximately half of such taxes was paid during 2021 and the other half is to be paid by the end of 2022, which is included in accrued compensation and benefits in the consolidated balance sheets as of both September 30, 2022 and December 31, 2021. The Company claimed an employee retention tax credit of $1,756.
8. COMMITMENTS AND CONTINGENCIES: LEGALCONTINGENCIES
Legal Proceedings
From time to time, the Company is involved in various lawsuits, claims, investigations, and proceedings that arise in the ordinary course of business. These matters typically relate to professional liability, tax, payroll,compensation, contract, competitor disputes and employee-related matters and include individual and collectiveclass action lawsuits, as well as inquiries and investigations by governmental agencies regarding the Company’s employment and compensation practices. Additionally, some of the Company’s clients may also become subject to claims, governmental inquiries and investigations, and legal actions relating to services provided by the Company’s healthcare professionals. Depending upon the particular facts and circumstances, the Company may also be subject to indemnification obligations under its contracts with such clients relating to these matters. The Company accrues for contingencies and records a liability when management believes an adverse outcome from a loss contingency is both probable and the amount, or a range, can be reasonably estimated. Significant judgment is required to determine both probability of loss and the estimated amount. The Company reviews its loss contingencies at least quarterly and adjusts its accruals and/or disclosures to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, or other new information, as deemed necessary. The most significant
matters for which the Company has established loss contingencies are class actions related to wage and hour claims under California and Federal law. Specifically, among other claims in these lawsuits, it is alleged that certain expense reimbursements should be considered wages and included in the regular rate of pay for purposes of calculating overtime rates.
On May 26, 2016, former travel nurse Verna Maxwell Clarke filed a complaint against AMN Services, LLC, in California Superior Court in Los Angeles County. The Company removed the case to the United States District Court for the Central District of California (Case No. 2:16-cv-04132-DSF-KS) (the “Clarke Matter”). The complaint asserts that, due to the Company’s per diem adjustment practices, traveling nurses’ per diem benefits should be included in their regular rate of pay for the purposes of calculating their overtime compensation. On June 26, 2018, the district court denied the plaintiffs’ Motion for Summary Judgment in its entirety, and granted the Company’s Motion for Summary Judgment with respect to the plaintiffs’ per diem and overtime claims. Management currently believesThe plaintiffs filed an appeal of the probable loss relatedjudgment relating to thesethe per diem claims with the Ninth Circuit Court of Appeals (the “Ninth Circuit”). On February 8, 2021, the Ninth Circuit issued an opinion that reversed the district court’s granting of the Company’s Motion for Summary Judgment and remanded the matter to the district court instructing the district to enter partial summary judgment in favor of the plaintiffs. On August 26, 2021, the Company filed a Petition for Writ of Certiorari in the United States Supreme Court seeking review of the Ninth Circuit’s decision, which was denied on December 13, 2021. This case is proceeding in the United States District Court.
On May 2, 2019, former travel nurse Sara Woehrle filed a complaint against AMN Services, LLC, and Providence Health System – Southern California in California Superior Court in Los Angeles County. The Company removed the case to the United States District Court for the Central District of California (Case No. 2:19-cv-05282 DSF-KS). The complaint asserts that, due to the Company’s per diem adjustment practices, traveling nurses’ per diem benefits should be included in their regular rate of pay for the purposes of calculating their overtime compensation. The complaint also alleges that the putative class members were denied required meal periods, denied proper overtime compensation, were not compensated for all time worked, including reporting time and training time, and received non-compliant wage statements. The Company has reached an
agreement to settle this matter in its entirety and hour claimsis awaiting court approval. Final approval of the settlement is expected in late 2022 or early 2023.
Because of the inherent uncertainty of litigation, the Company is not material andable to reasonably predict if any matter will be resolved in a manner that is materially adverse to the amountCompany. The Company has recorded accruals in connection with the matters described above amounting to $37,225. The Company is currently unable to estimate the possible loss or range of loss beyond amounts already accrued. Loss contingencies accrued by the Company for such claims is not material as of both September 30, 2017. However, losses ultimately incurred for such claims could materially differ from amounts already accrued by the Company.
With regards to outstanding loss contingencies as of September 30, 2017, which2022 and December 31, 2021 are included in accounts payable and accrued expenses and other long-term liabilities in the consolidated balance sheets.
Operating Leases
In the first quarter of 2022, the Company entered into a lease agreement for an office building located in Dallas, Texas, with future undiscounted lease payments of approximately $29,514, excluding lease incentives. Because the Company does not control the underlying asset during the construction period, the Company is not considered the owner of the asset under construction for accounting purposes. The lease will commence upon completion of the construction of the office building which is expected be in the first quarter of 2023. The initial term of the lease is approximately eleven years with options to renew the lease during the lease term. A right-of-use asset and lease liability will be recognized in the consolidated balance sheet the Company believes that such matters will not, either individually or in the aggregate, have a material adverse effect on its business, consolidated financial position, resultsperiod the lease commences.
9. BALANCE SHEET DETAILS
The consolidated balance sheets detail is as follows asfollows:
| | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
Other current assets: | | | | |
Restricted cash and cash equivalents | | $ | 27,764 | | | $ | 29,262 | |
Income taxes receivable | | 1,426 | | | — | |
Other | | 25,314 | | | 37,568 | |
Other current assets | | $ | 54,504 | | | $ | 66,830 | |
| | | | |
Prepaid expenses: | | | | |
Prepaid payroll deposits | | $ | — | | | $ | 60,014 | |
Other | | 17,019 | | | 12,446 | |
Prepaid expenses | | 17,019 | | | 72,460 | |
| | | | |
Fixed assets: | | | | |
Furniture and equipment | | $ | 47,618 | | | $ | 43,134 | |
Software | | 303,197 | | | 265,137 | |
Leasehold improvements | | 2,882 | | | 8,797 | |
| | 353,697 | | | 317,068 | |
Accumulated depreciation | | (212,702) | | | (189,954) | |
Fixed assets, net | | $ | 140,995 | | | $ | 127,114 | |
| | | | |
Other assets: | | | | |
Life insurance cash surrender value | | $ | 110,279 | | | $ | 115,095 | |
Other | | 42,691 | | | 41,575 | |
Other assets | | $ | 152,970 | | | $ | 156,670 | |
| | | | |
Accounts payable and accrued expenses: | | | | |
Trade accounts payable | | $ | 84,334 | | | $ | 77,325 | |
Subcontractor payable | | 254,697 | | | 261,689 | |
Accrued expenses | | 89,196 | | | 61,220 | |
Loss contingencies | | 14,933 | | | 10,400 | |
Professional liability reserve | | 7,712 | | | 7,127 | |
Other | | 8,365 | | | 7,496 | |
Accounts payable and accrued expenses | | $ | 459,237 | | | $ | 425,257 | |
| | | | |
Accrued compensation and benefits: | | | | |
Accrued payroll | | $ | 93,495 | | | $ | 98,817 | |
Accrued bonuses and commissions | | 90,640 | | | 105,155 | |
Accrued travel expense | | 2,312 | | | 3,058 | |
Health insurance reserve | | 7,685 | | | 6,041 | |
Workers compensation reserve | | 11,500 | | | 12,384 | |
Deferred compensation | | 116,922 | | | 119,617 | |
Other | | 16,279 | | | 9,309 | |
Accrued compensation and benefits | | $ | 338,833 | | | $ | 354,381 | |
| | | | |
Other current liabilities: | | | | |
Acquisition related liabilities | | $ | 6,810 | | | $ | — | |
Income taxes payable | | — | | | 21,162 | |
Client deposits | | 61,319 | | | 141,102 | |
Other | | 1,761 | | | 155 | |
Other current liabilities | | $ | 69,890 | | | $ | 162,419 | |
| | | | |
| | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
Other long-term liabilities: | | | | |
Workers compensation reserve | | $ | 22,633 | | | $ | 24,130 | |
Professional liability reserve | | 38,163 | | | 34,544 | |
Unrecognized tax benefits | | 4,785 | | | 4,633 | |
| | | | |
| | | | |
Other | | 32,647 | | | 33,682 | |
Other long-term liabilities | | $ | 98,228 | | | $ | 96,989 | |
|
| | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
Other current assets: | | | | |
Restricted cash and cash equivalents | | $ | 16,215 |
| | $ | 20,271 |
|
Other | | 10,005 |
| | 14,336 |
|
Other current assets | | $ | 26,220 |
| | $ | 34,607 |
|
| | | | |
Fixed assets: | | | | |
Furniture and equipment | | $ | 28,202 |
| | $ | 25,582 |
|
Software | | 126,492 |
| | 112,405 |
|
Leasehold improvements | | 8,025 |
| | 6,832 |
|
| | 162,719 |
| | 144,819 |
|
Accumulated depreciation | | (94,531 | ) | | (84,865 | ) |
Fixed assets, net | | $ | 68,188 |
| | $ | 59,954 |
|
| | | | |
Other assets: | | | | |
Life insurance cash surrender value | | $ | 45,835 |
| | $ | 32,190 |
|
Other | | 28,127 |
| | 25,344 |
|
Other assets | | $ | 73,962 |
| | $ | 57,534 |
|
| | | | |
Accounts payable and accrued expenses: | | | | |
Trade accounts payable | | $ | 24,166 |
| | $ | 33,392 |
|
Subcontractor payable | | 38,167 |
| | 51,973 |
|
Accrued expenses | | 45,690 |
| | 37,251 |
|
Professional liability reserve | | 7,048 |
| | 10,254 |
|
Other | | 2,863 |
| | 4,642 |
|
Accounts payable and accrued expenses | | $ | 117,934 |
| | $ | 137,512 |
|
| | | | |
Accrued compensation and benefits: | | | | |
Accrued payroll | | $ | 31,840 |
| | $ | 30,917 |
|
Accrued bonuses | | 16,755 |
| | 26,992 |
|
Accrued travel expense | | 3,488 |
| | 2,972 |
|
Accrued health insurance reserve | | 3,708 |
| | 3,189 |
|
Accrued workers compensation reserve | | 8,301 |
| | 8,406 |
|
Deferred compensation | | 45,771 |
| | 32,690 |
|
Other | | 2,121 |
| | 2,827 |
|
Accrued compensation and benefits | | $ | 111,984 |
| | $ | 107,993 |
|
| | | | |
Other current liabilities: | | | | |
Acquisition related liabilities | | $ | 2,981 |
| | $ | 6,921 |
|
Other | | 2,459 |
| | 9,690 |
|
Other current liabilities | | $ | 5,440 |
| | $ | 16,611 |
|
| | | | |
Other long-term liabilities: | | | | |
Workers’ compensation reserve | | $ | 18,475 |
| | $ | 18,708 |
|
Professional liability reserve | | 40,033 |
| | 37,338 |
|
Deferred rent | | 14,602 |
| | 13,274 |
|
Unrecognized tax benefits | | 7,240 |
| | 8,464 |
|
Other | | 2,323 |
| | 4,312 |
|
Other long-term liabilities | | $ | 82,673 |
| | $ | 82,096 |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto and other financial information included elsewhere herein and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2021, filed with the Securities and Exchange Commission (“SEC”) on February 17, 201724, 2022 (“20162021 Annual Report”). Certain statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are “forward-looking statements.” See “Special Note Regarding Forward-Looking Statements.” We undertake no obligation to update the forward-looking statements in this Quarterly Report. References in this Quarterly Report to “AMN Healthcare,” the “Company,” “we,” “us” and “our” refer to AMN Healthcare Services, Inc. and its wholly owned subsidiaries.
Overview of Our Business
We provide healthcare workforce solutions and staffing services to healthcare facilitiesorganizations across the nation. As an innovative workforcetotal talent solutions partner, our managed services programs, or “MSP,” vendor management systems, or “VMS,” recruitment process outsourcing, or “RPO,” workforce optimizationconsulting services, medical coding and consultingpredictive modeling, staff scheduling, credentialing services, revenue cycle solutions, language services, and the placement of physicians, nurses, allied healthcare professionals and healthcare executivesleaders into temporary and permanent positions enable our clients to successfully reduce staffing complexity, increase efficiency and lead their organizations within the rapidly evolving healthcare environment. Our clients include acute and sub-acute care hospitals, community health centers and clinics, physician practice groups, retail and urgent care centers, home health facilities, and many other healthcare settings. Our clients utilize our workforce solutions and healthcare staffing services to strategically plan for and meet their workforce needs in an economically beneficial manner. Our managed services program and vendor management systems enable healthcare organizations to increase their efficiency by managing all of their supplemental workforce needs through one company or technology.
We conduct business through three reportable segments: (1) nurse and allied solutions, (2) locum tenensphysician and leadership solutions, and (3) othertechnology and workforce solutions. For the three months ended September 30, 2017,2022, we recorded revenue of $494.4$1,138.6 million, as compared to $472.6 million for the same period last year. For the three months ended September 30, 2017, we recorded net income of $28.1 million, as compared to $27.3$877.8 million for the same period last year. For the nine months ended September 30, 2017,2022, we recorded revenue of $1,479.4$4,117.7 million, as compared to $1,414.4 million for the same period last year. For the nine months ended September 30, 2017, we recorded net income of $91.4 million, as compared to $79.5$2,621.2 million for the same period last year.
Nurse and allied solutions segment revenue comprised 62%77% and 73% of total consolidated revenue for both the nine months ended September 30, 20172022 and 2016.2021, respectively. Through our nurse and allied solutions segment, we provide hospitals and other healthcare facilities with a comprehensive managed services solution in which we manage and staff all of the temporary nursing and allied staffing needs of a clientclient. We also provide revenue cycle solutions, which include skilled labor solutions for remote medical coding, clinical documentation improvement, case management, and clinical data registry, and provide auditing and advisory services. A majority of our placements in this segment are under our managed services solution, however, we also provide traditional clinicaldirect nurse and allied healthcare staffing solutions of variable assignment lengths.
Locum tenensPhysician and leadership solutions segment revenue comprised 22%13% and 23%16% of total consolidated revenue for the nine months ended September 30, 20172022 and 2016,2021, respectively. Through our locum tenensphysician and leadership solutions segment, we provide a comprehensive managed services solution in which we manage all of the locum tenens needs of a client and place physicians of all specialties, as well as dentists and other advanced practice providers, with clients on a temporary basis, generally as independent contractors. These locum tenens providers are used by ourWe also recruit physicians and healthcare facilityleaders for permanent placement and physician practice group clients to fill temporary vacancies created by vacationplace interim leaders and leave schedulesexecutives across all healthcare settings. The interim healthcare leaders and to bridge the gap while they seek permanent candidates or explore expansion. Our locum tenens clients represent a diverse group of healthcare organizations throughout the United States, including hospitals, health systems, medical groups, occupational medical clinics, psychiatric facilities, government institutions, and insurance entities. The professionalsexecutives we place are recruited nationwide and are typically placed on contracts with assignment lengths ranging from a few days up to one year.year, and a growing number of these placements are under our managed services solution.
OtherTechnology and workforce solutions segment revenue comprised 16%10% and 15%11% of total consolidated revenue for both of the nine months ended September 30, 20172022 and 2016,2021, respectively. Through our othertechnology and workforce solutions segment, we provide hospitals and other healthcare facilities with a range of workforce solutions, including: (1) identifying and recruiting physicians and healthcare leaders for permanent placement,language services, (2) placing interim leaders and executives across all healthcare settings, (3) a software-as-a-service (“SaaS”) VMS technologies through which our clients can manage all of their temporary staffing needs, (3) workforce optimization services that include consulting, data analytics, predictive modeling, and SaaS-based scheduling technology, (4) RPOrecruitment process outsourcing services that leverage our expertise and support systems to replace or complement a client’s existing internal recruitment function for permanent placement needs, (5) an education program that provides custom healthcare education, research, professional practice tools, and professional development services, (6) medical coding and related consultingvirtual care services, and (7) workforce optimization services(6) credentialing services.
As part of our long-term growth strategy to add value for our clients, healthcare professionals, and shareholders, on May 13, 2022 and April 7, 2021, we acquired Connetics and Synzi (including its wholly-owned subsidiary SnapMD), respectively. Connetics specializes in the direct hire recruitment and permanent placement of international nurse and allied health professionals with healthcare facilities in the United States. Synzi and SnapMD offer virtual care technology platforms; Synzi focuses on the care management and home health markets and primarily serves as a patient communication and engagement
platform, while SnapMD focuses on the outpatient market and primarily serves as a clinical communication and documentation platform. See additional information in the accompanying Note (2), “Acquisitions.”
Operating Metrics
In addition to our consolidated and segment financial results, we monitor the following key metrics to help us evaluate our results of operations and financial condition and make strategic decisions. We believe this information is useful in understanding our operational performance and trends affecting our businesses.
•Average travelers on assignment represents the average number of nurse and allied healthcare professionals on assignment during the period, which is used by management as a measure of volume in our nurse and allied solutions segment;
•Bill rates represent the hourly straight-time rates that include consulting, data analytics, predictive modeling,we bill to clients, which are an indicator of labor market trends and SaaS-based scheduling technology.costs within our nurse and allied solutions segment;
•Billable hours represent hours worked by our healthcare professionals that we are able to bill on client engagements, which are used by management as a measure of volume in our nurse and allied solutions segment;
•Days filled is calculated by dividing total locum tenens hours filled during the period by eight hours, which is used by management as a measure of volume in our locum tenens business within our physician and leadership solutions segment; and
•Revenue per day filled is calculated by dividing revenue of our locum tenens business by days filled for the period, which is an indicator of labor market trends and costs in our locum tenens business within our physician and leadership solutions segment.
Recent Trends
Demand for our temporary and permanent placement staffing services is driven in part by U.S. economic and labor trends. The U.S. Bureau of Labor Statistics’ survey data reflect near record levels oftrends, and since early 2020 through present, the COVID-19 pandemic and the “Great Resignation” have impacted demand. Since late 2020, we have been experiencing historically high demand for nurses and allied healthcare job openings and quits, which we view as positive trends for the healthcare staffing industry. At the same time, the entire healthcare industry continues to face uncertainty related to the potential dismantling, or significant change to certain aspects of, the Affordable Care Act, which could impact the reimbursements upon which our clients depend. The uncertainty has impacted the utilization of healthcare servicesprofessionals and demand for our services.across all segments and business lines is above pre-COVID-19 levels.
We continue to see the benefits of our workforce solutions strategy, particularly with our managed services programs. As a result of our ongoing focus on these strategic relationships, we continue to increase the percentage ofhigh demand levels across our nurse and allied revenue derivedsolutions segment driven by vacancies resulting from burnout, attrition, and retirements. In the third quarter, we also saw demand increase due to seasonal needs including flu clinics, winter orders, and staffing in school settings. Demand remains above pre-pandemic levels as the industry approaches what we believe to be new normal levels. The wages for nurses and the corresponding bill rates we charge our managed services program clients.clients peaked in the first quarter of 2022. Bill rates and clinician compensation declined in the second and third quarters, but remain well above prior year and pre-pandemic levels. We expect bill rates and clinician compensation to decline at a slower rate in the fourth quarter and remain above pre-pandemic levels as we exit 2022.
Demand across our physician and leadership solutions segment exceeded pre-pandemic levels during the first half of 2022. Compared to the second quarter of 2022, we saw a decline in our interim leadership business as some healthcare organizations are streamlining leadership roles to reduce costs. We expect continued strong demand for locum tenens staffing in the fourth quarter of 2022.
In our locum tenens solutions segment, we have seen a decline in demand in certain specialties such as hospitalists that has negatively impacted our volumestechnology and as a result, revenue in this segment. In addition, we made organizational and leadership changes in this business and are making operational changes to improve performance. We are beginning to see the positive impact of these changes and improving demand in most specialties.
In our other workforce solutions segment, our interim leadershiplanguage services business continued to experience increased utilization due to a shift to more virtual interpretation during the pandemic and vendor management systems businesses are growing. We are experiencing declineslabor shortages. Bill rates and volumes declined in our VMS business from peak levels in the first quarter, but still remained well above pre-pandemic levels. We anticipate bill rates will continue to decline in the fourth quarter before stabilizing well above pre-pandemic levels towards the end of 2022.
The demand for our recruitment process outsourcing services remained strong as clients look for solutions to help address the increased labor shortages and the need to address vacancies in their permanent placementroles and challenges with staffing their internal recruiting teams. We expect an elevated level of demand to continue in the current constrained labor market.
As our businesses thathave continued to grow, we believe are primarily relatedhave increased our sales and operations workforce to operational executionsupport our clients and are making organizational changes designedhealthcare professionals. We have also increased spending to improvesupport our performance.current team members and retain talent.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with United States generally accepted accounting principles (“U.S. GAAP”) requires us to make estimates and judgments that affect our reported amounts of assets and liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to intangible assets purchased in a business combination, asset impairments, accruals for self-insurance,self-
insurance, compensation and related benefits, accounts receivable, contingencies and litigation, earn-outcontingent consideration (“earn-out”) liabilities associated with acquisitions, and income taxes. We base these estimates on the information that is currently available to us and on various other assumptions that we believe are reasonable under the circumstances. Actual results could vary from these estimates under different assumptions or conditions. If these estimates differ significantly from actual results, our consolidated financial statements and future results of operations may be materially impacted. There have been no material changes in our critical accounting policies and estimates other than the adoption of Accounting Standards Update (“ASU”) 2016-09 described in Item 1. Condensed Consolidated Financial Statements—Note 1, “Basis of Presentation,” as compared to the critical accounting policies and estimates described in our 20162021 Annual Report.
Results of Operations
The following table sets forth, for the periods indicated, selected unaudited condensed consolidated statements of operations data as a percentage of revenue. Our results of operations include three reportable segments: (1) nurse and allied solutions, (2) locum tenensphysician and leadership solutions, and (3) othertechnology and workforce solutions. The Peak acquisition impactsConnetics and Synzi acquisitions impact the comparability of the results between the three and nine months ended September 30, 20172022 and 2016.2021, depending on the timing of the applicable acquisition. Our historical results are not necessarily indicative of our future results of operations.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Unaudited Condensed Consolidated Statements of Operations: | | | | | | | |
Revenue | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Cost of revenue | 66.2 | | | 65.2 | | | 67.4 | | | 66.6 | |
Gross profit | 33.8 | | | 34.8 | | | 32.6 | | | 33.4 | |
Selling, general and administrative | 18.9 | | | 19.8 | | | 17.4 | | | 18.8 | |
Depreciation and amortization | 2.9 | | | 2.9 | | | 2.4 | | | 2.8 | |
Income from operations | 12.0 | | | 12.1 | | | 12.8 | | | 11.8 | |
Interest expense, net, and other | 0.8 | | | 0.6 | | | 0.7 | | | 0.9 | |
Income before income taxes | 11.2 | | | 11.5 | | | 12.1 | | | 10.9 | |
Income tax expense | 3.1 | | | 3.1 | | | 3.3 | | | 2.8 | |
Net income | 8.1 | % | | 8.4 | % | | 8.8 | % | | 8.1 | % |
|
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Unaudited Condensed Consolidated Statements of Operations: | | | | | | | |
Revenue | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Cost of revenue | 67.7 |
| | 67.3 |
| | 67.4 |
| | 67.4 |
|
Gross profit | 32.3 |
| | 32.7 |
| | 32.6 |
| | 32.6 |
|
Selling, general and administrative | 20.3 |
| | 21.2 |
| | 20.2 |
| | 21.0 |
|
Depreciation and amortization | 1.7 |
| | 1.6 |
| | 1.6 |
| | 1.6 |
|
Income from operations | 10.3 |
| | 9.9 |
| | 10.8 |
| | 10.0 |
|
Interest expense, net, and other | 1.0 |
| | 0.6 |
| | 1.0 |
| | 0.6 |
|
Income before income taxes | 9.3 |
| | 9.3 |
| | 9.8 |
| | 9.4 |
|
Income tax expense | 3.6 |
| | 3.5 |
| | 3.6 |
| | 3.8 |
|
Net income | 5.7 | % | | 5.8 | % | | 6.2 | % | | 5.6 | % |
Comparison of Results for the Three Months Ended September 30, 20172022 to the Three Months Ended September 30, 20162021
Revenue. Revenue increased 5%30% to $494.4$1,138.6 million for the three months ended September 30, 20172022 from $472.6$877.8 million for the same period in 2016, all of which was2021, primarily attributable to higher organic growth.revenue across our segments.
Nurse and allied solutions segment revenue increased 6%32% to $302.9$828.3 million for the three months ended September 30, 20172022 from $286.8$627.0 million for the same period in 2016.2021. The $16.1$201.3 million increase was primarily attributable to a 4%23% increase in the average number of healthcare professionalstravelers on assignment and a 2%an approximately 13% increase in the average bill rate during the three months ended September 30, 2017.2022. The overall increase was partially offset by a 2% decrease in billable hours.
Locum tenensPhysician and leadership solutions segment revenue increased 3%16% to $111.4$175.2 million for the three months ended September 30, 20172022 from $108.6$150.7 million for the same period in 2016.2021. The $2.8$24.5 million increase was primarily attributable to a 4% increasegrowth in our core businesses across the revenue per day filledsegment, partially offset by lower COVID-19 project work. Revenue in our locum tenens business grew approximately 19% during the three months ended September 30, 2017, partially offset by2022 primarily due to a 1% decrease13% increase in the number of days filled and a 6% increase in the revenue per day filled. This growth was driven by a return in core demand and volume. Our interim leadership business experienced an approximately 9% growth, while our physician permanent placement and executive search businesses grew 21% during the three months ended September 30, 2022.
OtherTechnology and workforce solutions segment revenue increased 4%35% to $80.1$135.1 million for the three months ended September 30, 20172022 from $77.3$100.1 million for the same period in 2016.2021. The $2.8$35.0 million increase was primarily attributable to growth inwithin our VMS and interim leadershiplanguage services businesses. Revenue growth for our VMS and language services businesses partially offset by declines in our permanent placement businesseswas 80% and 18%, respectively, during the three months ended September 30, 2017.2022.
Gross Profit. Gross profit increased 3% to $159.5 million forFor the three months ended September 30, 20172022 and 2021, revenue under our MSP arrangements comprised approximately 61% and 52% of our consolidated revenue, 79% and 69% of our nurse and allied solutions segment revenue, 18% and 16% of our physician and leadership solutions segment revenue, and 2% and 3% of our technology and workforce solutions segment revenue, respectively.
Gross Profit. Gross profit increased 26% to $385.0 million for the three months ended September 30, 2022 from $154.5$305.9 million for the same period in 2016,2021, representing gross margins of 32.3%33.8% and 32.7%34.8%, respectively. The decreasedecline in consolidated gross margin for the three months ended September 30, 2022, as compared to the same period in 2021, was primarily due to an unfavorable change in sales mix, higher insurance costs in our other workforce solutions segment and(1) a lower bill-pay spreads in the locum tenens solutions segment, partially offset by a higher gross margin in theour nurse and allied solutions segment driven by higher clinician compensation and lower billable hours and (2) a lower margin in our physician and leadership solutions segment driven by higher clinician compensation and a change in specialty mix in our locum tenens business. The overall decline was partially offset by a higher margin in our technology and workforce solutions segment primarily by lower direct costs duringdue to a change in sales mix resulting from increased revenue in our VMS business and its higher margins as compared to our other businesses within the three months ended September 30, 2017.segment. Gross margin by reportable segment for the three months ended September 30, 20172022 and 20162021 was 27.3%27.0% and 26.7%29.3% for nurse and allied solutions, 30.1%34.0% and 31.2%34.8% for locum tenensphysician and leadership solutions, and 54.1%75.6% and 56.7%69.4% for othertechnology and workforce solutions, respectively.
Selling, General and Administrative Expenses. Selling, general and administrative (“SG&A”) expenses were $100.6$215.4 million, representing 20.3%18.9% of revenue, for the three months ended September 30, 2017,2022, as compared to $100.0$173.9 million, representing 21.2%19.8% of revenue, for the same period in 2016.2021. The increase in SG&A expenses was primarily due to $18.3 million of higher bad debt expense partially offset by operating leverage on the higher revenue and lower acquisition and integration costs as compared to the same period last year. The decrease in unallocated corporate overhead was primarily attributable to lower
acquisition and integration costs and employee compensation expenses.and benefits to support revenue growth and a $10.4 million increase in other expenses associated with the revenue growth. SG&A expenses broken down among the reportable segments, unallocated corporate overhead, and share-based compensation are as follows: | | | | | | | | (In Thousands) |
| (In Thousands) Three Months Ended September 30, | | Three Months Ended September 30, |
| 2017 | | 2016 | | 2022 | | 2021 |
Nurse and allied solutions | $ | 41,884 |
| | $ | 39,312 |
| Nurse and allied solutions | $ | 108,163 | | | $ | 91,449 | |
Locum tenens solutions | 19,075 |
| | 19,881 |
| |
Other workforce solutions | 23,445 |
| | 22,985 |
| |
Physician and leadership solutions | | Physician and leadership solutions | 35,596 | | | 33,070 | |
Technology and workforce solutions | | Technology and workforce solutions | 32,127 | | | 22,957 | |
Unallocated corporate overhead | 13,698 |
| | 15,113 |
| Unallocated corporate overhead | 34,635 | | | 23,867 | |
Share-based compensation | 2,477 |
| | 2,704 |
| Share-based compensation | 4,898 | | | 2,589 | |
| $ | 100,579 |
| | $ | 99,995 |
| | $ | 215,419 | | | $ | 173,932 | |
Depreciation and Amortization Expenses. Amortization expense decreased slightlyincreased 31% to $4.7$20.9 million for the three months ended September 30, 20172022 from $4.8$16.0 million for the same period in 2016.2021, primarily attributable to (1) the assignment of useful lives to certain tradenames and trademarks intangible assets that were previously not subject to amortization effective December 31, 2021 and (2) additional amortization expenses related to the intangible assets acquired in the Connetics acquisition. Depreciation expense (exclusive of depreciation included in cost of revenue) increased 13%23% to $3.4$12.4 million for the three months ended September 30, 20172022 from $3.0$10.1 million for the same period in 2016,2021, primarily attributable to an increase in purchased and developed hardware and software placed in service for our ongoing front and back office information technology initiatives.
Interest Expense, Net,investments to support our total talent solutions initiatives and Other. Interestto optimize our internal systems. Additionally, $1.1 million and $0.7 million of depreciation expense net, and other, was $4.8 million during the three months ended September 30, 2017 as compared to $3.0 million for the same periodour language services business is included in 2016. The increase is primarily due to higher interest bearing Notes (as defined below)cost of revenue for the three months ended September 30, 2017, as compared to2022 and 2021, respectively.
Interest Expense, Net, and Other. Interest expense, net, and other was $9.0 million during the term loans and revolver in the same period last year.
Income Tax Expense. Income tax expense was $17.9 million for the three months ended September 30, 20172022 as compared to income tax expense of $16.4$5.2 million for the same period in 2016, reflecting effective income2021. The increase was primarily due to a $5.4 million gain related to the change in fair value of an equity investment during the three months ended September 30, 2021.
Income Tax Expense. Income tax rates of 39% and 37%expense was $35.0 million for the three months ended September 30, 20172022 as compared to $26.6 million for the same period in 2021, reflecting effective income tax rates of 27% and 2016,26% for these periods, respectively. The differenceincrease in the effective income tax rate was primarily attributable to the relationshiprecognition of pre-tax$1.5 million of discrete tax expense for fair value changes in the cash surrender value of our Company Owned Life Insurance (“COLI”) during the three months ended September 30, 2022 compared to a $0.6 million discrete tax benefit for COLI recognized during the same period in 2021, in relation to income to permanent differences related to unrecognized tax benefits.before income taxes of $127.4 million and $100.6 million for the three months ended September 30, 2022 and 2021, respectively. We currently estimate our annual effective income tax rate to be approximately 38%27% for 2017.2022.
Comparison of Results for the Nine Months Ended September 30, 20172022 to the Nine Months Ended September 30, 20162021
Revenue. Revenue increased 5%57% to $1,479.4$4,117.7 million for the nine months ended September 30, 20172022 from $1,414.4$2,621.2 million for the same period in 2016, due2021, primarily attributable to additionalhigher organic revenue of $12.4 million resulting fromacross our Peak acquisition in June 2016 with the remainder of the increase driven by 4% organic growth.segments.
Nurse and allied solutions segment revenue increased 5%65% to $917.2$3,157.8 million for the nine months ended September 30, 20172022 from $877.2$1,908.2 million for the same period in 2016.2021. The $40.0$1,249.6 million increase was primarily attributable to a 5%an approximately 32% increase in the average number of healthcare professionalstravelers on assignment, and a 3%27% increase in the average bill rate, and an approximately $77.0 million increase in labor disruption revenue during the nine months ended September 30, 2017.2022. The overall increase was partially offset by an approximately $28.0 milliona 2% decrease in labor disruption revenuebillable hours.
Physician and the impact of one less calendar day due to last year being a leap year.
Locum tenensleadership solutions segment revenue was $322.5increased 23% to $530.4 million for the nine months ended September 30, 2017, as compared to $320.42022 from $430.5 million for the same period in 2016.2021. The $2.1$99.9 million increase was primarily attributable to a 4% increasegrowth in our core businesses across the revenue per day filledsegment, partially offset by lower COVID-19 project work. Revenue in our locum tenens business grew approximately 28% during the nine months ended September 30, 2017, partially offset by2022 primarily due to a 3% decrease22% increase in the number of days filled and a 5% increase in the revenue per day filled. This growth was driven by a return in core demand and volume. Our interim leadership business experienced an approximately 10% growth, while our physician permanent placement and executive search businesses grew 30% during the nine months ended September 30, 2022.
OtherTechnology and workforce solutions segment revenue increased 11%52% to $239.7$429.5 million for the nine months ended September 30, 20172022 from $216.8$282.5 million for the same period in 2016. Of the $22.92021. The $147.0 million increase $12.4 million was attributable to the additional revenue in connection with the Peak acquisition in June 2016 with the remainder primarily attributable to growth inwithin our VMS interim leadership, and workforce optimization businesses, partially offset by declines in our permanent placement and recruitment process outsourcinglanguage services businesses during the nine months ended September 30, 2017.2022. Revenue growth for our VMS and language services businesses was 119% and 18%, respectively, during the nine months ended September 30, 2022.
For the nine months ended September 30, 2022 and 2021, revenue under our MSP arrangements comprised approximately 63% and 55% of our consolidated revenue, 80% and 73% of our nurse and allied solutions segment revenue, 17% and 15% of our physician and leadership solutions segment revenue, and 2% and 2% of our technology and workforce solutions segment revenue, respectively.
Gross Profit. Gross profit increased 5%53% to $482.3$1,341.4 million for the nine months ended September 30, 20172022 from $461.1$875.3 million for the same period in 2016,2021, representing gross margins of 32.6% for both periods. Consolidatedand 33.4%, respectively. The decline in consolidated gross margin was consistent withfor the prior yearnine months ended September 30, 2022, as compared to the same period in 2021, was primarily due to (1) a higher grosslower margin in theour nurse and allied solutions segment driven primarily by lower direct costs, offset by lower bill-pay spreads in the locum tenens solutions segment and an unfavorablehigher clinician compensation, (2) a change in sales mix resulting from higher revenue in our othernurse and allied solutions segment, and (3) a lower margin in our physician and leadership solutions segment driven by higher clinician compensation and a change in specialty mix in our locum tenens business. The overall decline was partially offset by a higher margin in our technology and workforce solutions segment duringprimarily due to a change in sales mix resulting from increased revenue in our VMS business and its higher margins as compared to our other businesses within the nine months ended September 30, 2017.segment. Gross margin by reportable segment for the nine months ended September 30, 20172022 and 20162021 was 27.6%26.2% and 26.7%27.6% for nurse and allied soluti
ons, 30.2%solutions, 34.4% and 31.2%36.1% for locum tenensphysician and leadership solutions, and 54.9%76.9% and 58.6%68.3% for othertechnology and workforce solutions, respectively.
Selling, General and Administrative Expenses. SG&A expenses were $299.3$717.4 million, representing 20.2%17.4% of revenue, for the nine months ended September 30, 2017,2022, as compared to $297.4$491.8 million, representing 21.0%18.8% of revenue, for the same period in 2016.2021. The increase in SG&A expenses was primarily due to $1.9$159.3 million of additional SG&A expenses from the Peak acquisitionhigher employee compensation and benefits, a $21.1 million increase in other expenses associated with ourrelated to revenue growth, offset by an additional $2.0and a $6.8 million favorable actuarial-based decreaseincrease in our professional liability reserves and $2.1 million decrease in acquisition and integration costs as compared to the same period last year. The decrease in unallocated corporate overhead was primarily attributable to lower acquisition and integration costs.share-based compensation expense. SG&A expenses broken down among the reportable segments, unallocated corporate overhead, and share-based compensation are as follows: | | | | | | | | (In Thousands) |
| (In Thousands) Nine Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2022 | | 2021 |
Nurse and allied solutions | $ | 118,464 |
| | $ | 115,755 |
| Nurse and allied solutions | $ | 357,585 | | | $ | 243,306 | |
Locum tenens solutions | 58,507 |
| | 56,247 |
| |
Other workforce solutions | 69,902 |
| | 70,654 |
| |
Physician and leadership solutions | | Physician and leadership solutions | 118,095 | | | 92,899 | |
Technology and workforce solutions | | Technology and workforce solutions | 100,722 | | | 62,758 | |
Unallocated corporate overhead | 44,732 |
| | 45,908 |
| Unallocated corporate overhead | 116,356 | | | 74,915 | |
Share-based compensation | 7,720 |
| | 8,795 |
| Share-based compensation | 24,670 | | | 17,895 | |
| $ | 299,325 |
| | $ | 297,359 |
| | $ | 717,428 | | | $ | 491,773 | |
Depreciation and Amortization Expenses. Amortization expense increased 2%29% to $13.9$60.8 million for the nine months ended September 30, 20172022 from $13.6$47.0 million for the same period in 2016,2021, primarily attributable to (1) the assignment of useful
lives to certain tradenames and trademarks intangible assets that were previously not subject to amortization effective December 31, 2021 and (2) additional amortization expenseexpenses related to the intangible assets acquired in the Peak acquisition.Connetics and Synzi acquisitions. Depreciation expense (exclusive of depreciation included in cost of revenue) increased 18%30% to $9.8$35.3 million for the nine months ended September 30, 20172022 from $8.3$27.1 million for the same period in 2016,2021, primarily attributable to fixed assets acquired as part of the Peak acquisition and an increase in purchased and developed hardware and software placed in service for our ongoing information technology investments to support our total talent solutions initiatives and to optimize our internal front and back office information technology initiatives.back-office systems. Additionally, $2.9 million and $1.8 million of depreciation expense for our language services business is included in cost of revenue for the nine months ended September 30, 2022 and 2021, respectively.
Interest Expense, Net, and Other. Interest expense, net, and other was $14.9$28.6 million during the nine months ended September 30, 20172022 as compared to $9.1$24.3 million for the same period in 2016.2021. The increase iswas primarily due to higher interest bearing Notes (as defined below) fora $6.7 million gain related to the change in fair value of an equity investment during the nine months ended September 30, 2017, as compared to2021. The overall increase was partially offset by a lower average debt outstanding balance during the term loans and revolver in the same period last year.nine months ended September 30, 2022, which resulted from repayments of our variable rate credit facilities.
Income Tax Expense. Income tax expense was $53.0$137.0 million for the nine months ended September 30, 20172022 as compared to income tax expense of $53.3$74.0 million for the same period in 2016,2021, reflecting effective income tax rates of 37%27% and 40%26% for the nine months ended September 30, 20172022 and 2016,2021, respectively. The differenceincrease in the effective income tax rate was primarily attributable to the relationshiprecognition of pre-tax income$2.5 million of net discrete tax expense during the nine months ended September 30, 2022 compared to permanent differences related to unrecognized$4.3 million of net discrete tax benefits recognized during the same period in 2021, in relation to income before income taxes of $499.2 million and excess tax benefit from the adoption of ASU 2016-09, “Stock Compensation - Improvements to Employee Share-Based Payment Accounting” in the first quarter of 2017, which resulted in recording a $5.4$285.1 million reduction in income tax expense for the nine months ended September 30, 2017. Prior to adoption, this amount would have been recorded as additional paid-in capital. Since the majority of our equity awards vest during the first quarter of the year, we do not anticipate the recording of additional excess tax benefits of this magnitude for the remainder of the year. This change could create future volatility in our effective tax rate depending upon the amount of exercise or vesting activity from our share-based awards. See additional information in Item 1. Condensed Consolidated Financial Statements—Note 1 “Basis of Presentation.” Including the impact of the adoption of ASU 2016-09, we currently estimate our annual effective income tax rate to be approximately 38% for 2017.2022 and 2021, respectively.
Liquidity and Capital Resources
In summary, our cash flows were:
| | | | | | | | | | | |
| (In Thousands) |
| Nine Months Ended September 30, |
| 2022 | | 2021 |
| |
Net cash provided by operating activities | $ | 538,405 | | | $ | 227,371 | |
Net cash used in investing activities | (148,067) | | | (79,017) | |
Net cash used in financing activities | (415,523) | | | (31,230) | |
|
| | | | | | | |
| (In Thousands) Nine Months Ended September 30, |
| 2017 | | 2016 |
| |
Net cash provided by operating activities | $ | 96,382 |
| | $ | 84,820 |
|
Net cash used in investing activities | (23,444 | ) | | (241,271 | ) |
Net cash provided by (used in) financing activities | (63,824 | ) | | 162,418 |
|
Historically, our primary liquidity requirements have been for acquisitions, working capital requirements, and debt service under our credit facilities and the Notes.senior notes. We have funded these requirements through internally generated cash flow and funds borrowed under our credit facilities. During the third quarter of 2017, we paid off the remaining balance of our term debt. As of September 30, 2017, zero2022, (1) no amount was drawn from $258.8with $378.6 million of available credit under theour $400.0 million secured revolving credit facility (the “Revolver”“Senior Credit Facility”) and, (2) the aggregate principal amount of our 5.125% Senior Notes4.625% senior notes due 20242027 (the “Notes”“2027 Notes”) outstanding equaled $325.0was $500.0 million, and (3) the aggregate principal amount of our 4.000% senior notes due 2029 (the “2029 Notes”) outstanding was $350.0 million. We describe in further detail our amended credit agreement, under which our term loan and Revolver arethe Senior Credit Facility is governed, the 2027 Notes, and the 2029 Notes in “Item 8. FinancialPart II, Item 8, “Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (8), Notes Payable and Credit Agreement” of our 20162021 Annual ReportReport.
As of September 30, 2022, the total of our contractual obligations under operating leases with initial terms in excess of one year was $19.7 million. We describe in further detail our operating lease arrangements in Part II, Item 8, “Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (5), Leases” of our 2021 Annual Report. We also have various obligations and working capital requirements, such as certain tax and legal matters, contingent consideration and other liabilities, that are recorded on Form 10-K.our consolidated balance sheets. See additional information in the accompanying Note (6), “Fair Value Measurement,” Note (7), “Income Taxes,” Note (8), “Commitments and Contingencies,” and Note (9), “Balance Sheet Details.”
In April 2015,addition to our cash requirements, we entered into an interest rate swap agreement to minimizehave a share repurchase program authorized by our exposure to interest rate fluctuations on $100 millionboard of our outstanding variable rate debt under onedirectors, which does not require the purchase of our term loans for which we pay a fixed rateany minimum number of 0.983% per annumshares and receive a variable rate equal to floating one-month LIBOR. This agreement expires on March 30, 2018,may be suspended or discontinued at any time. See additional information in the accompanying Part II, Item 2, “Unregistered Sales of Equity Securities and no initial investment was made to enter into this agreement. On October 3, 2016, we reduced the interest rate swap notional amount to $40 million. On May 3, 2017, we terminated the remaining interest rate swap.Use of Proceeds.”
We believe that cash generated from operations and available borrowings under the RevolverSenior Credit Facility will be sufficient to fund our operations and liquidity requirements, including expected capital expenditures, for at least the next year.12 months and beyond. We intend to finance potential future acquisitions either with cash provided from operations, borrowings under the Revolver,Senior Credit Facility or other borrowings under our amended credit agreement, bank loans, debt or equity offerings, or some combination of the foregoing. The following discussion provides further details of our liquidity and capital resources.
Operating Activities
Net cash provided by operating activities for the nine months ended September 30, 20172022 was $96.4$538.4 million, compared to $84.8$227.4 million for the same period in 2016.2021. The increase in net cash provided by operating activities was primarily attributable to (1) an increase in net income excluding non-cash expenses of $209.3 million primarily due to improved operating results in our nurse and allied solutions and technology and workforce solutions segments, (2) a decrease in accounts receivable and subcontractor receivablereceivables between periods of $294.3 million primarily due to a decrease in the receivables balance in the current year as compared to an increase in the prior year, which was due to increases in revenue and associate vendor usage in the prior year along with timing of collections, and (3) excess tax benefits on the vestinga decrease in prepaid expenses between periods of employee equity awards resulting from the adoption of a new accounting pronouncement discussed in Item 1. Condensed Consolidated Financial Statements—Note (1), “Basis of Presentation.”$61.2 million primarily due to refunds received for prepayments to third-party vendors related to labor disruption services. The overall increase in net cash provided by operating activities was partially offset by (1) a decrease in accrued compensation and benefits between periods of $93.7 million primarily due to prior year increases in pay rates, billable hours, and the average number of travelers on assignment in our nurse and allied solutions segment and increased employee compensation and benefits in 2021, (2) a decrease in accounts payable and accrued expenses between periods of $80.3 million primarily due to timingan increase in associate vendor usage in 2021, and (3) a decrease in other liabilities between periods of payments, (2) additional$73.3 million primarily due to cash paid for income taxes and client deposits related to labor disruption services that were returned during the nine months ended September 30, 2017 as compared to the same period last year, and (3) an increase in the cash, cash equivalents and investments attributable to cash payments made to our captive insurance entity, which are restricted for use by the captive for future claim payments and, to a lesser extent, its working capital needs.2022. Our Days Sales Outstanding (“DSO”) was 6459 days at each of September 30, 2017,2022, 53 days at December 31, 2016,2021, and 60 days at September 30, 2016.2021.
Investing Activities
Net cash used in investing activities for the nine months ended September 30, 20172022 was $23.4$148.1 million, compared to $241.3net cash used in investing activities of $79.0 million for the same period in 2016.2021. The decreaseincrease was primarily due to (1) no cash paid for acquisitions during the nine months ended September 30, 2017 as compared to $216.6$69.8 million used for acquisitions during the nine months ended September 30, 2016 and (2) net $6.22022, as compared to $41.3 million restricted investment proceeds related to our captive insurance entity during the nine months ended September 30, 2017. The overall decrease was partially offset by (1) a $2.0 million equity investment and2021, (2) $10.1$21.4 million of payments to fund the deferred compensation plan during the nine months ended September 30, 20172022 as compared to $5.7$6.1 million of payments during the nine months ended September 30, 2016. Capital2021, and (3) a net purchase of investments of $0.6 million during the nine months ended September 30, 2022, as compared to net proceeds of $7.6 million during the nine months ended September 30, 2021. In addition, capital expenditures were $17.2$51.2 million and $17.7$38.7 million for the nine months ended September 30, 20172022 and 2016,2021, respectively.
Financing Activities
Net cash used in financing activities during the nine months ended September 30, 20172022 was $63.8$415.5 million primarily due to (1) the repayment of $44.1 million under our term loans, (2) $3.7 million for acquisition contingent consideration earn-out payments, (3) $7.1$401.9 million paid in connection with the repurchase of our common stock and (4) $9.1$13.6 million in cash paid for shares withheld for payroll taxes resulting from the vesting of employee equity awards. Net cash provided byused in financing activities during the nine months ended September 30, 20162021 was $162.4$31.2 million, primarily due to borrowings(1) repayments of $124.0$70.0 million under the RevolverSenior Credit Facility and $75.0 million of borrowings under a new term loan under our amended credit agreement to fund our BES and HSG acquisitions, partially offset by (1) the repayment of $8.4$21.9 million under our then-existing secured term loans and $24.0loan credit facility, (2) $6.3 million under the Revolver, and (2) $5.6 millionin cash paid for shares withheld for payroll taxes resulting from the vesting of employee equity awards.awards, and (3) $3.1 million for acquisition earn-out payments, partially offset by borrowings of $70.0 million under the Senior Credit Facility.
Letters of Credit
At September 30, 2017,2022, we maintained outstanding standby letters of credit totaling $20.2$22.0 million as collateral in relation to our professional liability insurance agreements, workers’ compensation insurance agreements and a corporate office lease agreement. Of the $20.2$22.0 million of outstanding letters of credit, we have collateralized $4.0$0.6 million in cash and cash equivalents and the remaining amounts are$21.4 million is collateralized by the Revolver.Senior Credit Facility. Outstanding standby letters of credit at December 31, 20162021 totaled $15.4$23.6 million.
Off-Balance Sheet Arrangements
At September 30, 2017, we did not have any off-balance sheet arrangement that has or is reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.
Contractual Obligations
There have been no material changes to the table entitled “Contractual Obligations” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in our 2016 Annual Report that occurred during the nine months ended September 30, 2017.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance related to revenue recognition. This new standard will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. This guidance can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. In July 2015, the FASB voted to amend the guidance by approving a one-year delay in the effective date of the new standard to 2018. In addition, the FASB has also issued several amendments to the standard which clarify certain aspects of the guidance, including principal versus agent consideration and identifying performance obligations. We expect to complete our evaluation of the impact of the accounting and disclosure requirements on our consolidated financial statements, business processes, controls and systems during the fourth quarter of 2017. This includes reviewing current accounting policies and practices to identify potential impact of the accounting and disclosure requirements on our business processes, controls and system. The extent of the impact of the adoption of this new standard is subject to the completion of our assessment by the end of 2017. We will adopt this standard in the first quarter of 2018, and apply the modified retrospective approach.
In February 2016,October 2021, the FASB issued ASU 2016-02, “Leases.2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” This standard requires organizations that lease assetsThe new guidance will require companies to apply the definition of a performance obligation under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, to recognize and measure contract assets and contract liabilities, such as deferred revenue, relating to contracts with customers that are acquired in a business combination. Under existing guidance, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at their acquisition-date fair values in accordance with ASC Subtopic 820-10, Fair Value Measurements—Overall. Generally, this new guidance will result in the acquirer recognizing acquired contract assets and liabilities createdon the same basis that would have been recorded by those leases. Thethe acquiree prior to the acquisition under ASC Topic 606. This standard also will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The ASU becomesis effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We are required to adopt the guidance on a modified retrospective basis and can elect to apply optional practical expedients.2022, with
early adoption permitted. We are currently evaluating the approach we will take and the impact of adopting this new standard on our consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The standard provides guidance on how certain cash receipts and payments are presented and classified in the statement of cash flows. For public entities, ASU 2016-15 is effective for fiscal years beginning
after December 15, 2017, and interim periods within those annual periods, and requires a retrospective approach. Early adoption is permitted, including adoption in an interim period. We are currently evaluating the timing of this new standard’s adoption and the effect that adopting it will have on our financial statements and related disclosures.
In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” The standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new guidance is effective for interim and annual periods beginning after December 15, 2017 and early adoption is permitted. The amendment will be adopted retrospectively. We are currently evaluating the timing of this new standard’s adoption and the effect that adopting it will have on our financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The standard simplifies the subsequent measurement of goodwill by removing the requirement to perform a hypothetical purchase price allocation to compute the implied fair value of goodwill to measure impairment. Instead, any goodwill impairment will equal the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Further, the guidance eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. This standard is effective for annual or any interim goodwill impairment test in fiscal years beginning after December 15, 2019, with early adoption permitted for impairment tests performed after January 1, 2017. While we continue to assess the potential impact of this standard, we do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
There have been no other new accounting pronouncements issued but not yet adopted that are expected to materially affect our consolidated financial condition or results of operations.
Special Note Regarding Forward-Looking Statements
This Quarterly Report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We base these forward-looking statements on our expectations, estimates, forecasts, and projections about future events and about the industry in which we operate. Forward-looking statements are identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “should,” “would,” “project,” “may,” variations of such words, and other similar expressions. In addition, any statements that refer to projections of demand or supply trends, financial items, anticipated growth, future growth and revenues, future economic conditions and performance, plans, objectives and strategies for future operations, expectations, or other characterizations of future events or circumstances are forward-looking statements. All forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those discussed in, or implied by, these forward-looking statements. Factors that could cause actual results to differ materially from those implied by the forward-looking statements in this Quarterly Report are set forth in our 20162021 Annual Report and include but are not limited to:
•the effects of the COVID-19 pandemic on our business, financial condition and results of operations;
•the duration and extent to which hospitals and other healthcare entities adjust their utilization of temporary nurses and allied healthcare professionals, physicians, healthcare leaders and other healthcare professionals and workforce technology applications as a result of the labor market, economic conditions or COVID-19 pandemic;
•the extent to which a spike in the COVID-19 pandemic may disrupt our operations due to the unavailability of our employees or healthcare professionals because of illness, risk of illness, quarantines, travel restrictions, mandatory vaccination requirements, desire to travel and work on temporary assignments or other factors that limit our existing or potential workforce and pool of candidates;
•the severity and duration of the impact the COVID-19 pandemic has on the financial condition and cash flow of many hospitals and healthcare systems such that it impairs their ability to make payments to us, timely or otherwise, for services rendered;
•the effects of economic downturns, inflation, recession or slow recoveries, which could result in less demand for our services, pricing pressures and pricing pressures;negatively impact payments terms and collectability of accounts receivable;
the negative effects that intermediary organizations may have on our ability to secure new and profitable contracts with our clients;
the level of consolidation and concentration of buyers of healthcare workforce solutions and staffing services, which could affect the pricing of our services and our ability to mitigate concentration risk;
•any inability on our part to anticipate and quickly respond to changing marketplace conditions, such as alternative modes of healthcare delivery, reimbursement, or client needs;needs and requirements, including mandatory vaccination requirements;
•the negative effects that intermediary organizations may have on our ability to secure new and profitable contracts;
•the level of consolidation and concentration of buyers of healthcare workforce, staffing and technology solutions, which could affect the pricing of our services and our ability to mitigate concentration risk;
•the ability of our clients to retain and increase the productivity of their permanent staff, or their ability to increase the efficiency and effectiveness of their internalstaffing management and recruiting efforts, through predictive analytics, online recruiting, telemedicine or otherwise, which may negatively affect our revenue, results of operations, and cash flows;
the uncertainty regarding the dismantling of certain aspects of the Patient Protection•any inability on our part to recruit and Affordable Care Act that may significantly reduce the number of individuals who maintain health insurance or reduce the subsidiesretain sufficient quality healthcare professionals at reasonable costs, which could increase our operating costs and reimbursements to our clients, which, in turn, may negatively affect the demand for our services;business and profitability;
•any inability on our part to grow and operate our business profitably in compliance with federal and state healthcare industry regulation, including privacy laws, conduct of operations, costs and payment for services and payment for referrals as well as laws regarding employment and compensation practices and government contracting;
•any challenge to the classification of certain of our healthcare professionals as independent contractors, which could adversely affect our profitability;
•the effect of investigations, claims, and legal proceedings alleging medical malpractice, violationanti-competitive conduct, violations of employment, privacy and wage regulations and other legal theories of liability asserted against us, which could subject us to substantial liabilities;
security breaches and other•any technology disruptions that could compromiseor our information and expose us to liability, which could cause our business and reputation to suffer and could subject us to substantial liabilities;
any inability on our part to implement new infrastructure and technology systems effectively or technology disruptions, either of which may adversely affect our operating results and our ability to manage our business effectively;
•any failure to further develop and evolve our current workforce solutions technology offerings and capabilities, which may harm our business and/or impact our ability to compete with new technologies and competitors;
•disruption to or failures of our SaaS-based technology within certain of our service offeringsor technology-enabled services, or our inability to adequately protect our intellectual property rights with respect to such technology, whichtechnologies or sufficiently protect the privacy of personal information, could reduce client satisfaction, harm our reputation and negatively affect our business;
•security breaches and cybersecurity incidents, including ransomware, that could compromise our information and systems, which could adversely affect our business operations and reputation and could subject us to substantial liabilities;
•any inability on our part to quickly and properly credential and match quality healthcare professionals with suitable placements, which may adversely affect demand for our services;
•any inability on our part to continue to attract, develop and retain our sales and operations team members, which may deteriorate our operations;
•our increasing dependence on third parties, including offshore vendors, for the execution of certain critical functions;
cybersecurity risks and cyber incidents, which could adversely affect our business or disrupt our operations;
any inability on our part to recruit and retain sufficient quality healthcare professionals at reasonable costs;
any inability on our part to properly screen and match quality healthcare professionals with suitable placements;
any inability on our part to successfully attract, develop and retain a sufficient number of quality sales and operations personnel;
•the loss of our key officers and management personnel, which could adversely affect our business and operating results;
•any inability to consummate and effectively incorporate acquisitions into our business operations, which may adversely affect our long-term growth and our results of operations;
•businesses we acquire may have liabilities or adverse operating issues, which could harm our operating results;
•any increase to our business and operating risks as we develop new services and clients, enter new lines of business, and focus more of our business on providing a full range of client solutions;
•any inability on our part to maintain our positive brand awareness and identity;identity, which may adversely affect our results of operation;
any inability on•the expansion of social media platforms presents new risks and challenges, which could cause damage to our part to consummate and effectively incorporate acquisitions into our business operations;brand reputation;
•any recognition by us of an impairment to the substantial amount of goodwill or indefinite-lived intangibles;intangibles on our balance sheet;
•our indebtedness, which could adversely affect our ability to raise additional capital to fund operations, limit our ability to react to changes in the effect of significant adverse adjustments byeconomy or our industry, and expose us to our insurance-related accruals, which could decrease our earnings or increase our losses, asinterest rate risk to the case may be;extent of any variable rate debt;
our significant indebtedness and any inability on our part to generate sufficient cash flow to service our debt; and
•the terms of our debt instruments that impose restrictions on us that may affect our ability to successfully operate our business.business; and
•the effect of significant adverse adjustments to our insurance-related accruals on our balance sheet, which could decrease our earnings or increase our losses and negatively impact our cash flows.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates, and commodity prices. During the three and nine months ended September 30, 2017,2022, our primary exposure to market risk was interest rate risk associated with our variable interest debt instruments. In April 2015, we entered into an interest rate swap agreement to minimizeinstruments and our exposure to interest rate fluctuations on $100 million of our outstanding variable rate debt under one of our term loans for which we pay a fixed rate of 0.983% per annum and receive a variable rate equal to floating one-month LIBOR. In connection with the issuance and sale of the Notes and repayment of a portion of the Term Loans, we reduced the interest rate swap notional amount to $40 million in the fourth quarter of 2016. On May 3, 2017, we terminated the remaining interest rate swap after further repayment of the Term Loans. During the third quarter of 2017, we paid off the remaining balance of the Term Loans.investment portfolio. A 100 basis point increase in interest rates on our variable rate debt would
not have resulted in a material effect on our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2017. 2022. A 100 basis point change in interest rates as of September 30, 2022 would not have resulted in a material effect on the fair value of our investment portfolio. For our investments that are classified as available-for-sale, unrealized gains or losses related to fluctuations in market volatility and interest rates are reflected within stockholders’ equity in accumulated other comprehensive
income (loss) in the consolidated balance sheets. Such unrealized losses would be realized only if we sell the investments prior to maturity.
During the three and nine months ended September 30, 2017,2022, we generated substantially all of our revenue in the United States. Accordingly, we believe that our foreign currency risk is immaterial.
Item 4. Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of September 30, 20172022 were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 20172022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.Information with respect to this item may be found in the accompanying Note (8), “Commitments and Contingencies,” which is incorporated herein by reference.
Item 1A. Risk Factors
We do not believe that there have been any material changes to the risk factors disclosed in Part I, Item 1A of our 20162021 Annual Report. The risk factors described in our 2021 Annual Report are not the only risks we face. Factors we currently do not know, factors that we currently consider immaterial or factors that are not specific to us, such as general economic conditions, may also materially adversely affect our business or our consolidated operating results, financial condition or cash flows.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
From time to time, we may repurchase our common stock in the open market pursuant to programs approved by our board of directors (the “Board”). On November 1, 2016, our Board authorized us to repurchase up to $150.0 million of our outstanding common stock in the open market. On November 10, 2021, February 17, 2022 and June 15, 2022, we announced increases to the repurchase program under which we may repurchase an additional $150.0 million, $300.0 million, and $250.0 million, respectively, of our outstanding common stock. Under the repurchase program announced on November 1, 2016 and the aforementioned increases (collectively, the “Company Repurchase Program”), share repurchases may be made from time to time, depending on prevailing market conditions and other considerations. The Company Repurchase Program has no expiration date and may be discontinued or suspended at any time.
During the nine months ended September 30, 2022, we repurchased 4,174 thousand shares of common stock at an average price of $96.26 per share excluding broker’s fees, resulting in an aggregate purchase price of $401.9 million, funded through cash on hand. We describe in further detail our repurchase program and the shares repurchased thereunder in Part II, Item 5, “Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” and Item 8, “Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (10)(b), Capital Stock—Treasury Stock” set forth in our 2021 Annual Report.
| | | | | | | | | | | | | | | | | | | | | | | |
Period | Total Number of Shares (or Units) Purchased | | Average Price Paid per Share (or Unit) | | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Program | | Maximum Dollar Value of Shares (or Units) that May Yet Be Purchased Under the Program |
January 1 - 31, 2022 | 690,783 | | | $97.98 | | 690,783 | | | $ | 110,467,685 | |
February 1 - 28, 2022 | 648,346 | | | $99.67 | | 648,346 | | | $ | 345,825,167 | |
March 1 - 31, 2022 | 958,545 | | | $99.79 | | 958,545 | | | $ | 250,144,621 | |
April 1 - 30, 2022 | 104,843 | | | $101.59 | | 104,843 | | | $ | 239,490,711 | |
May 1 - 31, 2022 | 1,771,240 | | | $92.12 | | 1,771,240 | | | $ | 76,278,235 | |
June 1 - 30, 2022 | — | | | $— | | — | | | $ | 326,278,235 | |
July 1 - 31, 2022 | — | | | $— | | — | | | $ | 326,278,235 | |
August 1 - 31, 2022 | — | | | $— | | — | | | $ | 326,278,235 | |
September 1 - 30, 2022 | — | | | $— | | — | | | $ | 326,278,235 | |
| | | | | | | |
Total | 4,173,757 | | | $96.26 | | 4,173,757 | | | $ | 326,278,235 | |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
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Exhibit Number | | Description |
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10.1 | | |
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10.2 | | |
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31.1 | | |
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101.INS | | XBRL Instance Document.* |
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101.SCH | | XBRL Taxonomy Extension Schema Document.* |
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101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document.* |
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101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document.* |
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101.LAB | | XBRL Taxonomy Extension Label Linkbase Document.* |
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101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document.* |
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* | | Filed herewith. |
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** | | FiledCorrected version of a previously filed exhibit. (Filed herewith.) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: November 3, 20174, 2022
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AMN HEALTHCARE SERVICES, INC. |
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/S/ SUSAN R. SALKA |
Susan R. Salka President and Chief Executive Officer (Principal Executive Officer)
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Date: November 4, 2022
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AMN HEALTHCARE SERVICES, INC. |
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/S/ SUSANJEFFREY R. SALKAKNUDSON |
SusanJeffrey R. Salka
PresidentKnudson Chief Financial Officer (Principal Financial and Chief Executive Officer
(Principal ExecutiveAccounting Officer)
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Date: November 3, 2017
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/S/ BRIAN M. SCOTT
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Brian M. Scott
Chief Accounting Officer,
Chief Financial Officer and Treasurer
(Principal Accounting and Financial Officer)
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